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THE OFFICIAL MAGAZINE OF THENATIONAL ASSOCIATION OF PLAN ADVISORS

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What’sNext?...and Who’s DrivingNAPA’s Top 10 DC Innovators

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n a p a n e t t h e m a g a z i n e2

16 Unintended ConseqUenCes of investment PoliCy and oPen arChiteCtUre by Jerry BramlettWhat can we learn from the policy and practice traits of plan sponsors who refuse to fall into

the fund rotation trap?

35 naPa Partner CornerOur directory of leading record keepers and DCIOs

52 if at first yoU don’t sUCCeed, try sCienCe by Robert L. Frick and Cathy SmithA look inside the Center for Behavioral Finance — and “Behavioral Finance 2.0”

What’s Next? …aNd Who’s driviNg by Fred Barstein

PARTNER CORNER

The Partner Corner connects plan advisors with

leading record keepers and DC Investment Only

(DCIO) �rms — highlighting DCIOs’ services,

resources and positioning in the market, as well as

territory maps for their sales and support people.

Value added services and white papers also may be

accessed by topic. Currently, only NAPA Firm Part-

ners at a certain membership level have the oppor-

tunity to publish a basic or enhanced listing in the

Partner Corner.

35

16

DATApsychology

behaviorOUTCOMESFACTSres

earch

SCIENCE

know ledge52

NAPA’s list of the top 10 innovators in the DC industry

featUres

Cover illustration by: tyler Charlton

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©2013 Massachusetts Mutual Life Insurance Company. All rights reserved. MassMutual Financial Group refers to Massachusetts Mutual Life Insurance Company (MassMutual) [of which Retirement Services is a division] and its affiliated companies and sales representatives. “Retirement Leader of the Year” awarded to MassMutual’s Retirement Services Division for industry leadership and excellence in retirement plan services, Fund Industry Intelligence (Euromoney Institutional Investor), April 5, 2012. RS: 30882-00

Your participants matter to you, so they matter to us. See how our award-winning tools, team support

and communications can help reach the goals your participants have for retirement. To learn more, call

your retirement plan professional or contact MassMutual at 1-866-444-2601, MassMutual.com/Retire

THE PEOPLE. THE PLANS.WE KNOW YOU CARE ABOUT BOTH.

TOTAL RETIREMENT SERVICES + TPA + DEFINED CONTRIBUTION + DEFINED BENEFIT + NONQUALIFIED +

NONPROFIT + GOVERNMENT + TAFT-HARTLEY + STABLE VALUE + PEO + IRA

T:10”T:12”


eDitor-iN-Chieffred Barstein

Publishererik vander [email protected]

eDitorJohn [email protected]

assoCiate eDitortroy [email protected]

art DireCtortony Julien

aDvertisiNg CoorDiNatorJenn mcKibben

jr. graPhiC DesigNersmichelle Brownelyse Jennings

NaPa offiCers

PresiDeNt marcy supovitz, CPC, qPa, qKa, aif, ChfC, ClU

PresiDeNt-eleCtsteven dimitriou, aif, aams, PrP

exeCutive DireCtor/CeoBrian h. Graff, esq., aPm

NAPA Net — The Magazine is published quarterly by the national association of Plan advisors, 4245 north fairfax dr., suite 750, arlington, va 22203. for subscription information, advertising and customer service, please contact naPa at the above address or call 800-308-6714, or [email protected]. Copyright 2013, national association of Plan advisors. all rights reserved. this magazine may not be reproduced in whole or in part without written permission of the publisher. opinions expressed in bylined articles are those of the authors and do not necessarily reflect the official policy of naPa.

Postmaster: Please send change-of-address notices for NAPA Net — The Magazine to naPa, 4245 north fairfax dr., suite 750, arlington, va 22203.

stock images: thinkstock

05 letter from the editorby Fred BarsteinOnly infinite patience will produce immediate results.

06 inside naPaby Marcy SupovitzJoin the rest of “NAPA Nation” in March to catch up, keep up, get ahead and find the next path.

08 inside the Beltwayby Brian H. GraffAdmitting there is a problem is the first step.

10 inside the lawby David N. LevineAre you a fiduciary? Here are four reasons why you should care.

12 inside the Plan sPonsor’s mind

by Steff C. ChalkIt’s time plan sponsors come to grips with their new three-part role.

14 inside the stewardshiP movementby Donald B. TroneNext time you’re in a finals presentation, go in naked.

56 inside the Plan PartiCiPant’s mind

by Warren CormierParticipants and plan sponsors live in two different service-quality worlds.

58 inside the marKetPlaCeby Fred BarsteinThe DC industry is just waiting to consolidate. Here’s why.

60 inside the nUmBersby Nevin E. AdamsBeing positioned to offer advice through the plan may turn out to be less of a challenge than getting participants to take it.

ColUmns

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58

5w i n t e r 2 0 1 3 • n a p a - n e t . o r g

n an industry that uses historical data to confidently predict the future, it’s no wonder we have trouble trying to envision a future that does not mirror the past. Yet to make a dent in

an issue as important as improving retire-ment outcomes for generations of workers unprepared for a world where they have to rely on their own savings to retire, dramatic innovation is required. That’s the theme of this issue’s cover story.

There have been three major innova-tions since the inception of 401(k) plans:1. The discovery by Ted Benna (with apol-

ogies to McDonalds) that Code Section 401(k) could be used for corporate sponsored retirement plans.

2. Shifting to daily valuation and mutual funds by Fidelity and Bob Reynolds.

3. The use of behavioral science by pro-fessors Thaler and Benartzi to create the auto-plan, heralding the 2006 PPA.All three are important milestones on

the road to what’s next. But none is close to the destination where a significant percent-age of people are saving enough in their DC plan to replace a substantial percentage of their income and don’t outlive their savings.

So this issue’s cover story is devoted to what’s next and who’s driving — highlight-ing the 10 people who have changed the DC industry and are in a position to do so in the future. We use these people and their ideas to postulate what might be coming that will change the industry (that is, before the government steps in and takes over).

Innovation is the lifeblood of any in-dustry, but financial services lags most other markets. Think about the last significant disruptive financial services company that made a major difference. You have to go all the way back to Charles Schwab. Now think about technology, medicine or travel. Get the picture?

So looking ahead is important, even if progress promises to be slow to move the needle on retirement readiness. One key ele-ment needed for breakthrough innovation is diversity, which is sorely lacking in the finan-cial services and retirement markets. In his seminal book The Medici Effect, author and thought leader Frans Johansson looked at recent breakthrough innovations and found that the greater the diversity of thoughts, cultures and industry, the more striking the innovation. Read the book to see how the combination of burqas and bikinis, termites and architecture, and ice and sleeping beds led to ground-breaking products. So where’s the diversity in retirement services, where 90% of us are Caucasian males and 80% have either been educated or trained by a northeastern institution? We even dress the same!

Wherever we can find it, as leaders we have to push our clients, teams, partners — and most importantly, ourselves — to keep innovating and not be satisfied with the norm or driven by past performance. Maybe we need to look at other cultures, industries and new people that don’t look, think or act like us. Maybe we need to set aside time

l E T T E R f R O m T h E E d i T O R

fred Barstein » editor-in-Chief

to brainstorm in an environment where no ideas are too crazy or farfetched. You never know where that might lead.

Do we inspire our own companies, clients and communities to move beyond the norms? No doubt we have a long way to go in the retirement world, with a lot at stake. But only infinite patience will produce immediate results. N

one key element needed for breakthrough innovation is diversity, which is sorely lacking in the financial services and retirement markets.”

The Road to What’s Next


i N s i d E N A P A

Climbing the SummitJoin the rest of ‘naPa nation’ in march to catch up,

keep up, get ahead and find the next path.

Those of you who regularly attend the Summit already know the value this event provides in the form of business-building ideas, discovery of new approaches to your practice, interaction with the brightest minds in our industry and, most important-ly, networking. There’s just no substitute for actually being there and experiencing it — you’re with the “who’s who” in the industry.

Moreover, the 2014 Summit is taking place at a pivotal time for our industry. The Summit is a chance for us to come together as a group to protect and strengthen the industry that we have worked so hard to build. What we all do every day is import-ant to the financial success of all indi-viduals. We need to ensure that we stand together on the issues and the problems that we all face. The Summit helps coordinate this, bringing together not just advisors, but all industry professionals.

Most importantly, it brings together individuals who are passionate about help-ing people retire. The group that attends the NAPA 401(k) Summit is the future of retirement in America. N

» marcy supovitz, CPC, qPa, qKa, aif, ChfC, ClU, is the founding president of naPa. she also serves on the Board of directors of asPPa. marcy is a principal with Boulay donnelly & supovitz Consult-ing Group, inc., a retirement plan consulting and investment advisory firm in worcester, ma.

ganizations using it in the future, it should come as no surprise that once again, NAPA is leading the way.

As for general sessions, the goal is to make us all better at what we do and how we do it. Sometimes it’s about triggering that one idea that changes everything.

For example, one general session will feature two influential congressional insid-ers discussing not only their latest insights from Capitol Hill, but their personal views on how the political agendas will play out and what that could mean for retirement plan advisors. It’s a chance to gain insider intelligence even before it hits the press. That kind of perspective will put you one step ahead of the curve.

Another highlight will be Seth Godin, a captivating speaker and the author of 17 books that have been bestsellers around the world. For the unfamiliar, suffice it to say that Seth is the stuff of legend — and this session will be a show-stopper.

race yourself, because the retire-ment plan industry is changing in ways you may not realize. Are you prepared to change with it?

Find out at the 2014 NAPA 401(k) Summit, set for March 23-25 in New Orle-ans. That’s when “NAPA Nation” will con-vene to catch up, keep up, get ahead, and find the next path. In a word: ELEVATE.

The 2014 Summit will be a seminal event for a number of reasons. For one thing, it will be the first time that the Sum-mit, launched by ASPPA, will be branded exclusively as a NAPA event. And for another, the event has evolved from con-ference to convention — easily the largest gathering of its type in our industry. Even as many advisors and sponsors have cut back on attending industry events, NAPA’s 401(k) Summit has thrived.

Like all things NAPA, the Summit is created by advisors, for advisors. The content, speakers and special events are decided by advisor-led committees — there is no master or hidden agenda, and no pay-to-play. And for the first time ever, the workshop topics for the 2014 Summit were selected by polling advisors via NAPA Net (remember our polling tool from last summer?). In all, more than 12,000 votes were cast over a two-month period. This was a groundbreaking way of choosing the most relevant topics to cover in workshop sessions. While we’re likely to see more or-

By marCy sUPovitz

B the group that attends the naPa 401(k) summit is the future of retirement in america. ”


i N s i d E T h E b E l T w A y

asPPa and naPa decided early on to offer constructive solutions to help the tens of millions of american workers without access to a retirement plan. here are the principles we stand for when we engage with policymakers.

Admitting There is a Problem is the First Step

By Brian h. Graff

private sector products could satisfy the employer requirement. Currently we are actively involved with another half a dozen states that are considering the same issue.

When we engage, here are the princi-ples we stand for:• In order to address the small business

retirement plan distribution problem, the cornerstone of any state legislation must require employers above a certain size (typically at least five employees) to offer some type of retirement savings program to employees.

• Any qualified plan (such as a 401(k) plan) or payroll deduction IRA offered by any private sector vendor must be allowed to satisfy the employer mandate.

• While we do not believe that a state-sponsored retirement program option is necessary, if legislators choose to create a state default option (e.g., California), then it must be an IRA-based program exempt from ERISA.

• If there is a default state program, the state should sponsor a website that includes private-sector vendors so that the state program is presented to small businesses alongside private-sector products in order to achieve a level and competitive playing field.We believe that if these principles are

followed, dramatic gains can be achieved in closing the existing retirement plan coverage gap among American workers. Ultimately, that should be everyone’s shared goal. N

» Brian h. Graff, esq., aPm, is the executive director/Ceo of asPPa and naPa.

— that is, small business retirement plans are sold, not bought. Small business owners are too busy running their own business-es to focus on offering a retirement plan. Someone has to convince them to do it, and that someone — quite fairly — wants to get paid for that. Generally speaking, our industry’s business model is not well suited for distributing a retirement plan that starts with zero assets. We need to be honest with ourselves — our industry has really not been able to figure this out on a wide-scale basis.

We all agree that average American workers are not saving enough for retire-

ment. But in Washington, when we raise ideas to address income adequacy, we are commonly met with this retort: “Why should we focus on adequacy when half of working Americans don’t have a retirement plan in the first place?” That’s a reasonable point. It’s also a driving force behind those who argue that the government, including state governments, should take things over.

The retirement plan industry cannot afford to sit on the sideline on this issue any longer. That is why ASPPA and NAPA decided early in the game to get involved, to acknowledge there is a problem, and to have a seat at the table and offer con-structive solutions, not absolute objections. These solutions include pushing for changes in a bill in California which ensured that

t is well established that for most Amer-icans the key to successfully preparing for retirement is having access to a workplace savings program. Accord-ing to the Employee Benefit Research Institute (EBRI), more than 70% of employees earning between $30,000

and $50,000 participate in a 401(k)-type program when it is offered to them at work, while fewer than 5% of those same employ-ees save on their own in an IRA when they are not covered by a workplace retirement savings plan. That is a compelling differen-tial, and it is due in large part to the con-venience and inertia resulting from savings

through payroll deduction and the “culture of saving” that is often fostered due to the existence of the workplace retirement plan.

But there is a problem, and it’s time for our industry to admit it: Despite our best efforts, there are far too many Americans without access to a retirement plan at work. EBRI’s most recent estimates indicate that more than 51.4% of all workers and 39.6% of full-time workers are lacking retirement plan coverage. This translates to tens of mil-lions of American workers without access to a retirement plan.

The problem is not the lack of product. There are plenty of retirement plan prod-ucts available at a reasonable cost, includ-ing straightforward payroll deduction IRAs. Rather, the problem is one of distribution

Idespite our best efforts, there are far too many americans without access to a retirement plan at work.”


i N s i d E T h E l A w

Are You A Fiduciary? 4 Reasons Why You Should Care

Even if an advisor does not acknowl-edge fiduciary status within its contracting documents with the client, the Department of Labor and the courts will review whether the advisor is functioning as a fiduciary, and if so, will label the advisor as a fiduciary.

So Why Should an Advisor Care? First, with the advent of fee disclosure,

the increasing scrutiny of fiduciary issues re-lated to employee benefit plans as evidenced by the recent Yale Law professor letters, and

the general media interest in fee disclosure as evidenced by the weekly articles about retire-ment plan fees in the media, plan sponsors and plan fiduciaries are more educated than ever. An advisor which is well informed and clearly explains its “fiduciary” role can easily meet these challenges and provide high-qual-ity, valuable services to their clients — and is less likely to face challenges that they are just “playing” in the advisor market.

Second, the ERISA 408(b)(2) disclo-sures specifically require service providers to identify if they are a 3(21) fiduciary (which can include advisors performing services as 3(16) or 3(38) “fiduciaries”). Failure to properly provide a disclosure could lead to an advisor’s compensation being deemed a prohibited transaction under ERISA, thus resulting in their compensation being entirely

impermissible under ERISA. In a worst-case scenario, such disclosure failures could end an advisor’s career in the employee benefit plan market.

Third, the DOL continues to investigate advisors, their fees and their disclosures. When advisors hold themselves out or otherwise function as a fiduciary, the DOL can assert a whole new level of prohibited transaction liability against them because of their fiduciary status. For this reason alone, it is very important to understand where a

fiduciary’s ERISA duties begin and end.Fourth, the expected reproposal of the

definition of fiduciary is expected to result in a broader definition of fiduciary. As such, advisors should carefully reevaluate whether they are a fiduciary — and to what degree they are acting as one — to carefully manage their risk.

These are just a few, brief considerations that apply to an advisor who may be acting as a fiduciary. Being a fiduciary to a plan of-ten makes good sense to an advisor and his or her client — the key is to step carefully and be wary of what this role really entails and the significant risks that need to be monitored and avoided. N

» david n. levine is a principal with the Groom law Group, Chartered in washington, dC.

et’s face it: An advisor’s world is con-stantly changing. Over the past decade, there have been massive shifts in the industry — from the democratization of benchmarking resources and tools to the rise of ever-increasing levels of fee

disclosure. One common theme is that the fees advisors charge continue to come under increasing levels of scrutiny. Regardless of whether you view this scrutiny as just or unjust, it is now reality.

Many advisors have sought to differenti-ate themselves in an increasingly competitive marketplace by offering a range of addi-tional value added services — from partic-ipant education to portfolio management, participant investment advice and beyond. A common theme in recent years has been to say, “I’ll be a fiduciary to your plan.” As more and more advisors accept fiduciary status, many terms have been tossed about. Common ones and their general meanings include:• 3(21) Fiduciary. This definition of fidu-

ciary is the only “official” definition of fiduciary in ERISA. An individual can be an investment fiduciary or an adminis-trative fiduciary.

• 3(16) “Fiduciary.” This definition of “fiduciary” really refers to the party responsible for core ERISA disclosure (such as summary plan descriptions) and filing (such as Form 5500 annual report filings). It is a very limited list of duties.

• 3(38) “Fiduciary.” This definition of “fiduciary” refers to the RIA, bank or trust company that is an ERISA 3(21) fiduciary and has discretion to act on its own without the consent of a plan’s “named fiduciary” (often a committee or the employer itself).

Ultimately the key is to step carefully and be wary of what a fiduciary role really entails, as well as the significant risks that need to be monitored and avoided.

By david n. levine

Lwhen advisors hold themselves out or otherwise function as a fiduciary, the dol can assert a whole new level of prohibited transaction liability against them.”

Are You A Fiduciary? 4 Reasons Why You Should Care


i N s i d E T h E P l A N s P O N s O R ’ s m i N d

How Plan Sponsors Begin to Change Plan Outcomesto effect positive change, plan sponsors must come to grips with their new three-part role: visionary, leader and responsible party.

here is a continuous shaping and re-shaping of what a group of plan sponsors will communicate and learn during a classroom session when the goals of the attendees are aligned. Not all education sessions are created equal; because of that, learners can

become the best instructors on the issue of what ails the private pension system.

Corporate America continues to prog-ress along the path of supporting millions of American workers in their quest for a re-spectable retirement — on their own terms. Over the last 30 years, CEOs, HR directors, CFOs and risk managers have accepted an ever-morphing, and at times thankless, role in assisting employees in securing their own retirement via the corporate retirement plan.

Today, plan trustees are faced with the compelling influence of behavioral finance. Anyone who oversees a corporate retire-ment plan serves their plan participants well by incorporating the concepts and practices of both psychology and finance. However, the forward-looking plan spon-sor/plan trustee does not stop there. Plan sponsors today are looking for more than the low hanging fruit afforded by behavior-al finance. Very similar to the ‘80s and ‘90s, education remains a front-burner topic — although this time it is the plan sponsor who is seeking education.

Plan sponsors have come to realize that during recent years their role has progressed to one of visionary, leadership and respon-sible party.

VisionaryAs the plan visionary, responsible trust-

ees are asking of colleagues, plan advisors and industry practitioners, “What does the ideal retirement plan look like?” Few companies have on staff more than a single

visionary; however, it requires only a single visionary to make a difference in a compa-ny retirement plan. In turn this can result in an impact on thousands of plan participants within that company.

The visionary must be in the position to understand “what can be” and to recog-nize “what delta exists” between his or her own plan and what others might perceive to be the ideal plan. Comprehending the gap is the initial step in effecting the needed change. Most plans today have a visionary — most companies have someone on-staff who “gets it” when it comes to what should be delivered to plan participants. However, a visionary alone is not sufficient. A vision-ary must be accompanied by a leader.

Leadership Leadership has moved to the forefront

concerning the oversight of company retire-ment plans, and for more than one reason. Significant change will be required in most qualified retirement plans. In the absence of a strong leader, little can be communicat-ed and even less will be accomplished. An advocate must be present in-house for com-municating the change that needs to take place. The leader must communicate the plan needs and what the plan is intending to change, revise or update. However, since

the leader will normally be a strong voice within the company (meaning they will have other corporate duties), there must be an individual present who is willing to own and carry out the charge. There is a need for a responsible party.

Responsible PartyThe responsible party does not need to

be separate from the visionary and/or the leader — although in most cases it will be.

The responsible party will need to work tirelessly at making the retirement plan everything that that the visionary had described. The leader will need regular updates from the responsible party — both progress reports and awareness of impedi-ments or obstacles. The responsible party is the owner of the successful outcomes of the plan.

ConclusionFew plan sponsors are able to envision

the team requirements that are necessary to successfully design and implement a better retirement plan. Many firms are reluctant to make a change if nothing is broken inter-nally. In the absence of some significant pain being experienced on the part of the sponsoring organization, management will normally assume that no change is warrant-ed. That may or may not be an accurate self-assessment.

The above is a framework for deliver-ing positive change to the retirement plan. This framework can be effective in large or small organizations. Bear in mind, though, that what is described above is a starting point, not a destination. N

» steff C. Chalk is the executive director of the retirement advisor University (traU) and the Plan sponsor University (tPsU).

By steff C. ChalK

Plan sponsors today are looking for more than the low hanging fruit afforded by behavioral finances.”

T


NAPA

summit2014401(k)

REGISTER NOW AT:www.napasummit.org

Your Knowledge

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March 23–25Hilton New Orleans RiversideNew Orleans, LA


i N s i d E T h E s T E w A R d s h i P m O v E m E N T

ext time you’re in a finals presen-tation, go in naked.

Like processed food, pitch books have been genetically over-engineered — they all look

and taste the same. There is no sustenance to the content. Pity the poor plan sponsors who have to digest the stuff.

Next time you go into a finals presenta-tion, leave your coil or GBC-bound pre-sentation booklets in your briefcase, hand bag or European man purse. Don’t take the material out until the very end of your pre-sentation, and only then with instructions to file the information to demonstrate that the committee had followed an appropriate due diligence process.

If you have made it to the finals, there is an assumption that you can produce detailed performance reports, conduct

discipline to effectively serve and to lead the way?

The traditional finals presentation is dead. The obituary can be gleaned from re-cent Fidelity and J.P. Morgan plan sponsor surveys. In both cases the results reveal that plan sponsors are not inspired by their re-tirement advisors. It’s not for lack of skills; it’s for a lack of leadership. Plan sponsors are beginning to realize, or sense, that being compliant with ERISA is not enough to improve participant outcomes — something more needs to be done. And they’re expect-ing their retirement advisor to lead the way.

It takes courage to go in naked, and that’s the point. Plan sponsors are look-ing for three things from their prospective retirement advisor, and courage is one of them. Character and competence are the other two. (To be an inspiring leader, there

proprietary fund due diligence, deliver participant education and access fee and expense benchmarking services. To spend 28 minutes of your allotted 30 to discuss something the committee already knows or already has heard about from your compet-itors is a waste of time and an insult to the people you are trying to win over.

There is only one purpose for a finals presentation: for the selection committee to determine whether you are an effective and genuine leader and steward. Are you inspiring, and do you have the passion and

The Naked Finals Presentationthere is only one purpose for a finals presentation: for the selection committee to determine whether you are an effective and genuine leader and steward.

By donald B. trone

N it takes courage to go in naked, and that’s the point.”


must be a continuum and congruence of three things: character, competence and courage.)

So, if I’ve convinced you of the impor-tance of going in naked, what’s the best approach? “Love, listen and leap.” (This formula is the title of a Forbes post by Kevin Cashman: “The Three L’s of Leadership: Love, Listen and Leap.”)

LoveAt the Leadership Center we maintain a

news aggregation portal, www.lcwire.com, where we try to capture the best leadership and stewardship stories, blogs and videos of the day. I can still remember when the “Three L’s” blog first crossed my desk in November 2012. I was thinking, “Catchy title, but it’s using that pesky ‘love’ word.” I consider myself a typical guy, and like most typical guys you need a crowbar to pry “I love you” out of my mouth. I set the blog aside and didn’t post it on the LCwire site — and wouldn’t you know it, I’ve been coming across more and more leadership experts who talk about the importance of love and passion.

So, after almost a year of reflection and heavy duty convincing by the people who inspire me, I’m ready to say it: leadership is about love. Just before you go into a finals presentation, you have to fall in love. You have to remind yourself that you love your work, you love the people you work with and you love the fact that you are being giv-en the opportunity to acquire a new client.

Be in love when you cross the threshold of the boardroom door. Greet every member of the selection committee as if you’re meet-ing your future in-laws for the first time. One of my favorite leadership bloggers, Dan Rockwell (www.leadershipfreak.com), is fond of saying, “Intelligence and skill matter most when they express your heart.”

ListenGreat leaders are quite comfortable not

being in control. They possess a quiet confi-dence, and they don’t need a pitch book as a crutch. You have only 30 minutes to build a foundation of trust with the prospect, so don’t waste this valuable time talking about yourself. Instead, consider the following as an opening statement:

We understand that you are looking for

a new retirement advisor, and we’re honored that you have considered us a finalist. We have prepared a detailed booklet on our firm’s capabilities that we will share with you at the end of this meeting. With your permission, we would like to use the first 25 minutes to get to know you better so that we can spend the last 5 minutes to tailor our remarks to your specific requirements. If you have no initial questions for us, then we have a few questions for you:1. What’s inspiring about your 401(k) plan?

Be prepared — 99% of the time the committee will not be able to respond for two reasons: (1) no one has ever asked the question before and as a result, no one has ever contemplated an answer; and (2) because there is nothing inspiring about the plan. This is a very powerful question, so let the question hang in the air before you say anything more. After they have fumbled a couple of responses, move on to the next question.2. With regard to the plan, what’s your

greatest fear? There are two likely responses: (1) our

liability; or (2) our participants may not be saving enough. Notice that the differences between the two answers speak volumes about the plan sponsor’s corporate ethos (culture) — is senior management more concerned about themselves or their employ-ees? Sadly, most senior managers are more concerned about themselves.3. Are the goals and objectives of the

401(k) plan aligned with your organiza-tion’s ethos (culture)? Again, very few organizations have a

well-defined ethos, let alone have thought about aligning the 401(k) plan with the goals and objectives of the organization.4. What did you like about your last retire-

ment advisor?5. What did you not like about your last

retirement advisor?6. How do you normally run an investment

committee meeting? Does the chairper-son run the meeting, or the advisor?

7. Do you want me to help you manage your investment responsibilities, or do you want me to make the investment decisions?

LeapIf you’re able to spend the first 25

minutes of the finals presentation discuss-ing the answers to the above questions, you’ll be able to spend the last 5 minutes outlining how you can best serve the pros-pect. You’ll be able to leap to the specific subjects that are of greatest concern to the plan sponsor. The likelihood is that the pain points are related to leadership and stewardship issues, as opposed to the nuts and bolts of actually administering a plan.

ConclusionEvery worthwhile activity has a

leadership component and retirement management is no exception. Someone has to lead, and most plan sponsors are looking to you to take the point. Fur-thermore, positive, material changes to participant outcomes will only occur when plan sponsors recognize their stew-ardship responsibilities. More rules and regulations from the DOL won’t have an impact. Your leadership role will. If you want to win more finals presentations and broaden and deepen the relationship you have with existing clients, start to think and act like a leader. Don’t be afraid to go in naked! N

» donald B. trone, Gfs® (Global financial strat-

egist) is president of the leadership Center for investment stewards and the Ceo/chief ethos officer of 3ethos. don was the first director of the newly established institute for leadership at the U.s. Coast Guard academy, founder and past president of the foundation for fiduciary studies and principal founder and former Ceo of fi360. Copyright © 2013, 3ethos. Used by permission.

are you inspiring, and do you have the passion and discipline to effectively serve and to lead the way?”

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By BrUCe shUtan

Unintended Consequences of investment Policy and open architecture

what can we learn from the policy and practice traits of plan sponsors who refuse to fall into the fund rotation trap?

By Jerry Bramlett

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Unintended Consequences of investment Policy and open architecture

Tior does not deliver positive excess returns thereafter.” (Goyal & Wahal, 2008)

Other researchers (French, 2010, Pen-fold, 2012 and Barras, Scaillet & Wermers, 2010) support the same conclusion — investors tend to focus on performance to their own detriment.

Fat Tails and Black SwansThe analytics which underlie most

investment reviews are derived from the Capital Asset Pricing Model (CAPM) (e.g., alpha, beta, Sharpe ratio, information ratio). This model assumes that returns are normally distributed, but in fact, they have “fat tails.” Emanuel Derman writes:

It’s not surprising, then, that CAPM doesn’t correctly account for the re-turns on investments. CAPM may hold better in undramatic, liquid markets where informed investors determine prices. But the model’s assumptions fail badly during times of panic, fear, and limited liquidity. CAPM is a useful way of thinking about a model world that is, quite often, far from the world we live in.” (Derman, 2011)Panic to sell can be so intense that it

spreads to all securities like a wildfire in dry brush. Such events, which often matter the most, are sometimes called “Black Swans.” Investment prudence requires more than mathematics and numbers.

Reversion to the MeanIn 1985, Werner De Bondt and Rich-

ard Thaler studied constructed portfolios of the best and worst performing 35 and 50 stocks over many periods. They used monthly return data from the 1926-1982 period of all stocks listed on the NYSE. So, at the end of 1929, two 36-month port-folios were of the best performing stocks (winner portfolios) and the worst perform-ing stocks (loser portfolios). The results were tracked for the next 36 months. The benchmark’s return was subtracted from the results; i.e., the excess returns were calculated. This was repeated by advancing the starting date one year, again and again. The average of all excess returns after formation for winners and losers is shown in Fig. 1.

The same was done for 60-month periods where the average cumulative

he best is the enemy of the good.” La BégueuLe (1772), Voltaire

Could the process of fund selection and oversight, along with advisors’ thirst to ac-quire more clients in an increasingly competi-tive marketplace, actually worsen participant outcomes by causing feckless, short-sighted fund changes in retirement plans? Has open architecture, in spite of its many benefits, effectively turned investment funds into commodities? Is it the case that having access to thousands of alternatives — funds that are in a constant state of change in performance relative to their competition — is creating an increased tendency to view money managers simply as fund manufacturers and less as strategic partners?

This article explores these issues and suggests some prudent policies and practices to assist plan sponsors and their advisors in managing their relationships with investment management firms. The goal: to improve overall investment returns.

Trigger-Happy InvestingA 2012 study from Towers Watson

clearly demonstrates that replacing under-performing managers can hurt investors’ performance and, therefore, their retirement security. In a simulation of 10,000 different scenarios, the study found that an institution which keeps its managers through periods of underperformance substantially outper-forms ones that fire managers who trail their benchmarks over a three-year period.

The authors also suggest a means to de-termine whether an investor is trigger-happy. Specifically, they recommend that investors calculate the average information ratio of all the fired managers in the three years prior to their termination. If this average is negative, then the investor probably has a preference for past performance. The antidote to being a trigger-happy investor is to simply use index funds instead of focusing on active manage-ment.

Perhaps the best study in this area is by Amit Goyal and Sunil Wahal. They examined the selection and termination of investment management firms by 3,400 plan sponsors, involving 8,755 hiring decisions and $627 billion in mandates between 1994 and 2003. The authors concluded that “plan sponsors hire investment managers after large positive excess returns but this return-chasing behav-


Plan AdvisorsIt is not just about the incentive struc-

ture of open architecture. There is a coterie of plan advisors, largely inexperienced, who fly the banner of open architecture and play on the trigger-happy emotions of plan sponsors, often leading them into the fund rotation trap. The sales strategy is simple:A. Prospecting Plan Advisor to Plan Spon-

sor: “Your portfolio is full of losers; I pick winners.”

B. Sponsor to Advisor: “Hired! Put in the winners.”

C. Fund Rotations = drained returns: transaction costs, sponsor time, buy high/sell low.

D. 3 Years Later: Now a loser portfolio, Plan Sponsor returns to Step A.The prospecting advisor wins business

by saying, “Your current advisor picks losers and I pick winners.” The pitch will have CAPM window dressing (e.g., alphas, Morningstar ratings) but it is all about selling performance winners. Fund rota-tion becomes a permanent strategy to keep similar competitors at bay. Indeed, many of the software-based fund selection and moni-toring tools are specifically designed to sell on this strategy. This sales strategy mostly occurs in the small DC plan marketplace and diminishes a great deal as plans become

return over the benchmark mark was about +30% for the loser portfolios versus about -10% for the winner portfolios. Two of their findings stand out: “First, the returns for both winners and losers are mean reverting. Prior losers outperform the market average, while prior winners underperform. Second, the price reversals for losers are more pro-nounced than for winners.” (Richard Thaler and Werner F. M. De Bondt, 1992)

We tend to think of reversion to the mean as having mostly to do with the behav-ior of individual securities as the above study illustrates; however, the same dynamic is at work when chasing money manager returns. In a June 2013 column in The Wall Street Journal, Jason Zweig wrote:

My role, therefore, is to bet on regres-sion to the mean even as most investors, and financial journalists, are betting against it. I try to talk readers out of chasing whatever is hot and, instead, to think about investing in what is not hot. Instead of pandering to investors’ own worst tendencies, I try to push back. My role is also to remind them constantly that knowing what not to do is much more important than what to do. Ap-proximately 99% of the time, the single most important thing investors should do is absolutely nothing. (Zweig, 2013)

Open Architecture In this context, the term “open architec-

ture” refers to record keeping platforms that access most money management firms. As you look at its embedded incentives (mainly to focus on past performance), one might argue that it is facilitating “trigger-happy” investing. Open architecture is a “market-place.” Money managers are often treated as if they were commodities like smartphones, sugar or airplane tickets. But instead of price, people are incentivized to buy on performance.

A commoditizing fund marketplace creates an environment in which many of the real factors that influence superior perfor-mance outcomes are ignored. The incentives can create a trap, and that trap is fund rota-tion. It is a vicious circle that drains investor return. It costs a plan sponsor valuable time that would be better spent elsewhere. There are hidden transaction costs. It also follows the hot money crowd, where investors dump cash into funds, drive up the prices of the un-derlying securities and, when investors flee, drive security prices down (i.e., buy high, sell low).

This shifting from low- to high-perform-ing funds is reflected in the great disparity that exists between investment fund per-formance and investor return. Consider the following: Russel Kinnel, director of mutual fund research at Morningstar, analyzed mutual fund returns in 2010 through the last decade. The results showed that mutual funds overall, whether stock or bond funds, had better returns than the people who invested in them. The average mutual fund provided a humble average annual return of 3.18%, but individual investors ended up averaging a return about half that amount, 1.68%. (MarksJarvis, 2010) The culprit: mostly fund rotation.

the antidote to being a trigger-happy investor is to simply use index funds instead of focusing on active management.”

-5%

0%

5%

10%

15%

20%Loser Portfolios Winner Portfolios

12 Months Later 24 Months Later 36 Months Later

Average of Three-Year Test Periods Between January 1933 and December 1980

Fig. 1

w i n t e r 2 0 1 3 • n a p a - n e t . o r g 19

preference for distilled thinking implies favoring old investors and traders, that is, investors who have been exposed to the markets the longest, a matter that is counter to the common Wall Street practice of preferring those that have been the most profitable, and preferring the younger whenever possible.” (Taleb, 2001) The money management firm has a seat at the plan sponsor’s table.

• They hold managers accountable for implementing their philosophy and process. This is what the successful $15 billion New Mexico State Investment Council does. They have a disciplined philosophy and stick with under-performing managers, as long as the process is good. If they conclude that a manager’s underperformance is a result of a bad process, then the manager is replaced. Furthermore, if they no longer believe in the process, or the manager has changed the process, then they are likely to make a change. And

larger and the advisors and plan sponsors are more experienced. But as the Towers Watson study indicates, the fund rotation trap is found in all market segments, even though it may not be advisor driven.

Prudent Policies and PracticesAs one examines the policies and prac-

tices of those plan sponsors who do not fall into the fund rotation trap, the following can be seen.• They know that the money manage-

ment firm is more important than the individual manager. Portfolio managers are not seers. Decision makers rely on a team of analysts, economists and trad-ers, and an inner system of accountabil-ity and incentives. What is their philoso-phy and process, and are they deemed to be effective and prudent? How well do they attract top new talent? Do em-ployees have a career path that rewards excellence? Is there turnover or stability in the firm? Is the firm as a whole a “seasoned investor”?

• They favor a few seasoned management firms in a lineup. They use their time to understand and evaluate the portfolio manager and the money management firm’s philosophy and process. They favor seasoned money and portfolio managers who have back-of-the-head experiences in very bad times and very good times. As Nassim Taleb writes: “A

if something has gone wrong with the process — the team hasn’t been following it or they’ve made changes to the process — they terminate and don’t look back. (Fund Fire, 2012)When these policies and practices

are integrated into the Investment Policy Statement and with all those seated at the table, the fund rotation trap is rendered impotent. The emphasis on forming long-term relationships between plan sponsors and their money managers makes under-standing and real accountability the order of the day. N

» Jerry Bramlett writes the “inside investments” column for NAPA Net the Magazine. he was the founder, president and Ceo of the 401(k) Company, the Ceo of Benefitstreet and the founder/ Ceo of nextstep. Currently Jerry is engaged in industry consulting and preparing for his next venture.

Barras, laurent, olivier scaillet and russ wermers, 2010, “false discoveries in mutual fund performance: measuring luck in estimated alphas.” Journal of Finance 65(1): 179-216.

derman, emanuel, Models. Behaving. Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life. simon and schuster, 2011.

french, Kenneth r., “the Cost of active investing.” Journal of Finance lXiii, no. 4 (august 2008): 1537-1573.

Goyal, amit and sunil wahal, 2008, “the selection and termination of investment management firms by plan sponsors.” Journal of Finance 63(4): 1805–48.

marksJarvis, Gail, “timing hurts individual investors: most tend to buy and sell mutual funds at the wrong times.” Chicago Tribune, Business, february 16, 2010.

nauman, Billy, “firing over poor returns doesn’t pay: towers.” Fund Fire, June 25, 2012.

Penfold, robin, “evaluating an investment manager in an uncertain world.” Towers Watson Perspectives, 2012.

nassim nicholas taleb, Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life. texere, new york and london, 2001, pp. 55.

richard thaler and werner f. m. de Bondt, “does the stock market overreact.” Journal of Finance, volume 40, issue 3, “Papers and Proceedings of the forty-third annual meeting american finance association,” dallas, texas, december 28-30, 1984 (July 1985), pp. 793-805.

richard thaler and werner f. m. de Bondt, “a mean reverting walk down wall street,” in The Winner’s Curse: Paradoxes and Anomalies of Economic Life, ed. by richard thaler, Princeton University Press, 1992, pp. 158-159.

towers watson, 2012. “the Cost of trigger-happy investing.”

zweig, Jason, “intelligent investor,” The Wall Street Journal (June 28, 2013).

refereNCes

Percentage of Return Kept by Investors

Percentage of Return Forfeited by Investors

47.2% 54.8%

Mutual Funds Average Return 2000–2009

Fig. 2


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What’s Next?...and Who’s Driving

NAPA’s Top 10 DC Innovatorsby freD barsteiN

In an industry created by — and sometimes burdened by — rules and regulations, most people and companies in the de-fined contribution market are just trying to improve the current system. When it comes to innovation, the industry struggles. Yet Innovation still seems to be the door that everyone is trying to break through.

So who is trying to truly innovate, what are they up to, and what do they think? We started with the 10 people most likely to innovate who have a proven history in making substantial im-provements to the DC industry — and are in a position to make an impact in the future. They are NAPA’s “10 Most Innovative People in the DC Industry.”

Innovation differs from improvement in that it means doing something different rather than doing the same thing better. Regardless of how many ways one defines innovation in the re-tirement market, the goal seems to be crystal clear in everyone’s mind: improving participant outcomes. This is a simple concept, but getting there is complicated.


Perhaps the people with the most creative solutions are relatively unknown or come from a different industry entirely. Witness what Prof. Shlomo Benartzi did when he applied behavioral economic principles in a simple and elegant manner, or what plaintiff’s attorney Jerome Schlichter accomplished by questioning the basic fairness of a system in which fiduciaries were not acting like stewards. But since we don’t know who we don’t know, we have to start with the people who not only have created innovative solutions in our industry, but seem driven to find that next breakthrough.

Using 401(k)s as the bellwether for a new world driven by in-creased connectivity, author and New York Times columnist Thomas Friedman wrote earlier this year that the DC system embodies a world in which each individual must take charge of his or her life. Gone are the institutional protections from big government, employ-ers and unions, leaving individuals to fend for themselves. For some this can be very exciting, but for others it can be frightful. Friedman notes, “We’re entering a world that increasingly rewards individual aspiration and persistence and can measure precisely who is contrib-uting and who is not.”

How do we best prepare people for this new 401(k) world? What business models will get us there? We posed this question to NAPA’s “10 Most Innovative People in the DC Industry” from various sectors — including plan sponsors, advisors, distributors, record keepers, DCIOs, academics and attorneys — and found some interesting indi-cations of where we might be headed.

UCla anderson Prof. benartzi, best known for his “saVe more tomorrow” (smt) Program deVeloPed with UniVersity of ChiCago booth Professor riChard thaler (see featUre story on Page 52), CorreCtly Pointed oUt that there are really two Problems to solVe: how to helP PeoPle aCCUmU-late enoUgh money to retire, and how to ProdUCe a steady stream of inCome that they will not oUtliVe. Most people are unable or unwilling to save more today, so the SMT program raised tens of billions of dollars in retirement savings by simply asking peo-ple to sign up today to save more for tomorrow. The SMT program and other work by Thaler and Benartzi were the inspirations behind the 2006 Pension Protection Act and the whole auto plan movement.

Though Benartzi used participants’ inertia to help them make better decisions about enrolling, savings rates and investments, he thinks that we must now create technology and systems that force

Prof. shlomo beNartzi

uCla Professor

aCaDemia

23

people to engage in making decisions and to act, especially as they head into the decumulation phase of retirement. People are overwhelmed by having too many choices, so Benartzi believes that we can help by breaking them into smaller bites. In the digital world, if we make it easy and intuitive, more choices can be better and might even be necessary. Unlike sav-ing for retirement, where the goals might be more quantitative, decumulation is more qualitative and requires customiza-tion depending on where and how people want to retire.

So rather than talk about what prod-ucts people want to choose for retirement

income, Benartzi says that we need to ask them about their goals. And we can’t ask that in a vacuum — we have to give people a range of goals and let them select which ones they want. Benartzi calls this “thinking architecture.” Using more mobile technology, we need to help people make easy and simple decisions within a range of choices that lead them to poten-tially safe outcomes over and over as their life and priorities change.

Are the current crop of providers and distributors ready to meet these new chal-lenges, or will the 130 or so online advice companies launched since 2009 step in? Will record keepers who seem to have cre-ated a stream of “guaranteed income” be ready to adjust to a digital world driven by mobile technology? Though he is not ready to answer these questions, Benartzi is sure that within the next 10 to 15 years there will be an earthquake that many of the current record keepers and DCIOs are not prepared for. And like an earthquake, it’s impossible to predict when or where, or the magnitude of the shift.

in the digital world, if we make it easy and intuitive, more choices can be better and might even be necessary.”

w i n t e r 2 0 1 3 • n a p a - n e t . o r g


transactions and tools with information available in real time.

But the world is now more complicat-ed for Reynolds, who moved from two cli-ents — plan sponsors and participants — to three, adding plan advisors to the mix. And unlike Fidelity in the 1990s, Putnam outsources record keeping and must use third party investments. Today, Reynolds is riding technology again to make partic-ipants’ experiences more personalized and real by translating account balances into a monthly paycheck (which people can more easily relate to) and adjusting it by dialing up deferral rates, changing investments or delaying retirement. Putnam includes Social Security into the mix to provide a more realistic picture, and factors in the high cost

Internet strategy at Fidelity, Reynolds drove many functions onto the web, including

it’s no aCCident that of all the seCtors, reCord keePers haVe the most innoVators beCaUse they haVe the most Power to effeCt Change — at least for now. reynolds, who ran fidelity’s dC bUsiness for more than 20 years, tUrning it into an indUstry jUggernaUt, now rUns PUtnam and is intimately inVolVed with their retire-ment initiatiVes. Heralding one of the three major breakthroughs in the retirement industry, Fidelity created the daily valuation record keeping system stocked with propri-etary retail mutual funds, enabling the cost of running the plan to be shifted from plan sponsors to participants. Also in charge of

bob reyNolDs

PutNam iNvestmeNts

reCorD keePersreynolds sees the future depending on specialist advisors, who need to incorporate annuity features and leverage wealth management opportunities with their plan sponsor clients.


like reynolds, Charles sChwab Ceo walt bettinger started his Career in the retirement bUsiness at his own tPa firm in riChfield, oh. the firm was eVentUally boUght by sChwab. he diVides his Career into two ChaPters. ChaPter 1 was foCUsed on differentiating his bUsiness. bet-tinger was an early adoPter of oPen arChiteCtUre, Using the sChwab onesoUrCe sUPermarket, daily Val-Uation and fee transParenCy at a time when the market did not share his foCUs.

In Chapter 2, Bettinger is trying to do what’s in the best interest of the partici-pant — “doing well by doing good” — a common theme among the top innovators.

Having worked with many DB plans as a TPA at The Hampton Company, Bet-tinger was struck by how differently plan sponsors treated their DB plans from their DC plans. When it came to their DB plans, companies hired the best experts they could find and negotiated long and hard on fees. But when it came to their DC plans, they did not work as hard to find the best options, leaving participants to basically fend for themselves even though they were limited by the choices made by their employer and poorly equipped to

of health care, which depends on the health, genetics and location of the participant.

For Reynolds, the key to the future — and to innovation — is to use technology to keep getting more personal and relevant for each individual participant. This might include customized TDFs — not for the plan but for each individual. He’s concerned that if the government scales back deferrals, it could hurt a system that is doing exactly what it was designed to do.

Reynolds also sees the future depending

on specialist advisors who need to incorpo-rate annuity features and leverage wealth management opportunities with their plan sponsor clients. Though the focus on ad-visors might seem obvious, Reynolds built Fidelity’s business primarily by selling direct, so the shift is that much more dramatic. Reynolds believes that clients want to work with advisors who take a strong stand and make specific recommendations on how to help them to improve replacement ratios and participant confidence.

Walt bettiNger

Charles sChWab

for Bettinger, the future looks like schwab’s new all-index and etf platform, which includes imbedded advice for everyone while minimizing costs.


make prudent decisions.For Bettinger, the future looks like

Schwab’s new all-index and ETF platform, which includes imbedded advice for every-one while minimizing costs. He believes that understanding how much to save, where to invest and how to incorporate outside assets is more important than paying for active fund management. Not judging whether passive or active management is better, Bettinger concluded that the cost of active management should be shifted to the advice component.

Today, many advisors are focused on inputs, including plan design and the hiring and firing of fund managers. In the future, successful advisors will either be focused on and paid on outcomes, or they will face a world where their entire business and reve-nue model is at risk, according to Bettinger. Though most advisors see little room for themselves in Schwab’s Advantage all-pas-sive approach utilizing a third-party advice provider, Bettinger says that many agree that shifting cost to advice away from active management makes sense. When the ETF platform is ready, Bettinger claims, it could be revolutionary because it will allow partic-ipants to leverage the strength of ETFs that, so far, have been emasculated to accommo-date DC record keeping limitations.

made famoUs for tUrning the “bisys Crisis” into a legitimate sUCCess story at the renamed asCensUs, gUilloCheaU started his Career in the mUtUal fUnd transfer agenCy bUsi-ness, whiCh Consolidated down to jUst a few firms after mUtUal fUnds realized that oUtsoUrCing made more sense. asCensUs was an early adoPt-er of the fee-based, oPen arChiteC-tUre model for the smaller market; introdUCed etfs into 401(k)s in 2009; and forged a strategiC relationshiP with VangUard to offer their fUnds and brand to adVisors.

Today Ascensus is a leader in outsourc-ing record keeping. It is uniquely positioned for two main reasons. First, they do not rely on asset-based fees and are therefore not subject to the vagaries of the market — they make money on transactions. Secondly, they are owned by a PE firm that has deep pock-ets and long-term investing horizons, so they do not have to worry about quarterly earn-ings or be burdened by a bureaucratic parent who sees retirement as a stepchild and adds layers of corporate expenses. Eventually, there will have to be a transaction — but that may be a good driver for innovation.

bob guilloCheau

asCeNsus

Guillocheau sees opportunities for advisors to lower plan costs by building models using etfs, giving them more room to add their own value.


Guillocheau echoed other top innova-tors’ sentiments about the focus on out-comes not just being a differentiator but a requirement. To enable participants, the industry will need to provide them with meaningful information available at their fingertips that might compare what they are doing to others like them. Guillocheau sees opportunities for advisors to lower plan costs by building models using ETFs, giving them more room to add their own value.

As the only outsourcer on the list, we asked why there has not been more con-solidation and whether the record keeping

industry will mirror the vast consolidation of transfer agents and back office fund process-ing. Though scale matters and outsourcing might make perfect sense for many providers, where owning a record keeping shop is no longer a huge differentiator, Guillocheau thinks providers will move more slowly. Many functions and services tied to record keeping are tied into other divisions of the company, like IT, minimizing overall savings. In addition, many providers do not truly understand how much record keeping and administration of DC plans cost, so savings are less obvious.

sUPoVitz is the adVisor who droVe the Creation of naPa. a long-time asPPa member and early leader of what was onCe Called the “asPPa 401(k) sales sUmmit,” sUPo-Vitz ConVinCed asPPa Ceo and exeC-UtiVe direCtor brian graff to begin Planning the Creation of naPa in 2010. sUPoVitz thoUght it was time that Plan adVisors had their own organization to rePresent them in washington at a CritiCal time. naPa has exCeeded her wildest exPeCta-tions, with Close to 7,000 members and almost eVery major dC ProVider and broker dealer signed on as a sUPPortiVe firm Partner.

An early entrant in the DC market, Supovitz began her career at Allmerica, where she helped create and run their retirement division before leaving for Pioneer. In 2003 she joined a Massa-chusetts-based TPA, Boulay, Donnelly and Supovitz, and has helped grow their advisory practice.

marCy suPovitz

boulay DoNNelly & suPovitz CoNsultiNg grouP, iNC.

aDvisor

in the future, advisors who want to help plans and participants will have to become specialists, with a clear move away from commissioned-based products due to pressure from the government.”


with $4 trillion Under management and another $10 trillion Under “adVisement” in their aladdin risk management system, it’s hard to Point to one Person at blaCkroCk — thoUgh the foUnder and Ceo, larry fink, is keenly foCUsed on the dC market, esPeCially Plan adVisors.

Supovitz views NAPA as the acknowl-edgement of the maturing of the plan advisor profession, which someday might include a certification process like the AIC-PA does for accountants. NAPA’s mission is not only to be the voice of the plan advisor industry, but to drive change as well. In the future, advisors who want to help plans and participants will have to become specialists with a clear move away from commissioned based products due to pressure from the government.

larry fiNk

blaCkroCk

DCioin the future, according to Blackrock, advisors need to be focused less on picking and monitoring funds and more on managing risk and putting participants on a path to achieve their goals.


More than 120 firms have stepped up with their check books, business intelligence, and “can do” attitude to support NAPA, the only organization

that educates and advocates specifically for plan advisors like you. NAPA is grateful for its Firm Partners. We hope you appreciate them too.

Should your firm be on this list and enjoy the benefits of NAPA Firm Partnership? To learn more contact Jeff Hoffman, Sr. Director of Business & Membership Development, NAPA 703-516-9300 x119 · [email protected]

BROKER-DEALERBank of America Merrill LynchCommonwealth Financial NetworkFinancial TelesisING Financial PartnersJohn Hancock Financial NetworkLPL FinancialMML Investors ServicesMorgan StanleyNFP Securities, Inc.PershingPrincipal Financial GroupRaymond JamesSignator InvestorsTransamerica Financial AdvisorsUBS Financial Services

Wells Fargo Advisors

RIA401(k) Advisors — ArizonaArgentus PartnersAlliance Benefit Group — North Central

StatesCAPTRUST Financial AdvisorsCooney Financial AdvisorsDice Financial Services GroupDirect Retirement SolutionsEHD Advisory Services, Inc.Fiducia Group, LLCFiduciary Consulting Group at PSAFiduciary Consulting Group, LLCGordon Asset Management, LLCGraystone Consulting, a business of

Morgan StanleyHighTower Advisors – ArizonaInstitutional Investment ConsultingInterServ, LLCKarp Capital ManagementLAMCO Advisory ServicesLatus GroupLongview Financial Partners, LLCMayflower Advisors, LLCMCF AdvisorsMillenniuM Investment

& Retirement AdvisorsNicklas Financial Companies

Precept Advisory GroupPresidium Retirement AdvisersPrincipled AdvisorsRetirement Fund ManagementRetirement Resources

Investment CorpSageView Advisory GroupShea & McMurdie FinancialStonegate Wealth ManagementStrategic Wealth ManagementThe Maresh Yoshida 401k GroupTsukazaki & Associates, LLCVigilant Financial Partners

DCIOAllianceBernsteinAllianz Global Investors DistributorsAmerican Century InvestmentsAmerican FundsBlackRockBNY Melon Asset ManagementCapital InnovationsEaton VanceFederated InvestorsFidelity InvestmentsFranklin TempletonING U.S. Investment ManagementInvescoJohn Hancock InvestmentsJP MorganLegg MasonMFS Investment

Management CompanyNuveen InvestmentsOppenheimerFundsParnassus InvestmentsPIMCOPutnam InvestmentsRidgeWorth InvestmentsT. Rowe PriceThornburg Investment Management

Transamerica Funds

RECORD KEEPERADP Retirement ServicesAmerican FundsBlueStar Retirement Services

Charles Schwab & Co.CPI Qualified Plan ConsultantsDailyAccessFidelity InvestmentsGreat-West FinancialGuardian RetirementING Retirement ServicesJohn Hancock Retirement Plan ServicesJP MorganJuly Business ServicesMassMutual Retirement ServicesNationwide FinancialNorth American KTRADE AllianceOneAmericaPentegraPrincipal Financial GroupPutnam InvestmentsRetirement RevolutionT. Rowe PriceTransamerica Retirement Solutions

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OTHER FIRM PARTNERS401(k) RekonAmerican National Bank of Texas TrustBenefitsLink.Com, Inc. /

EmployeeBenefitsJobs.comBoston Research GroupBroadridge/Matrix Financial SolutionsColonial SuretyDrinker, Biddle & Reath, LLPEnvestnet Retirement SolutionsFi360Galliard Capital ManagementGross Strategic MarketingGROUPIRAIntegrated Retirement InitiativesNAPLIAPension Resource Institute, LLCRetirement Learning CenterShoeFitts MarketingThe 401(k) Coach ProgramThe Retirement Advisor UniversityThe Retirement Readiness InstituteThe Wagner Law GroupUpTick Data TechnologiesWealth Management Systems, Inc.

IRM PARTNERSFNAPA• FIR

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Care about You and Your Practice


as db Plans fade, PeoPle haVe to worry not jUst aboUt saVing enoUgh for retirement bUt also aboUt not oUtliVing their assets and Creating a steady stream of inCome. as Unit-ed teChnologies (UtC) PrePared for the Closing of their db Plan to new emPloyees in 2010, robin diamonte, Cio, and keVin hanney, direCtor of their saVings Plan, wanted to reCre-ate the gUaranteed stream of inCome featUres of a db Plan in their dC Plan. Working with three insurers (Nationwide, Lincoln and Prudential) and Alliance Ber-nstein, UTC created a guaranteed lifetime income product that now covers 20,000 employees.

More flexible than a DB plan, partic-ipants have the freedom to contribute as little or as much as they want. Using State Street index funds, UTC looks at each per-

BlackRock is uniquely positioned not just because of their size but because of their makeup, covering many aspects of the investment world. Much of their reach has come through acquisitions, including fixed income (the original firm), indexing (Bar-clays), ETFs (iShares) and active manage-ment (MLIM). Barclay’s predecessor firm, Wells Fargo, is credited with creating TDFs in 1993; their Aladdin system is consid-ered the premier global risk management solution, with risk management becoming more important to DC plan fiduciaries than performance.

BlackRock became hyper-focused on advisors with the acquisition of Merrill Lynch’s investment management division. BlackRock believes that advisors are more likely to drive change because they are rewarded for results, while consultants are focused on keeping clients out of trouble. While most DCIOs rely on record keepers and advisors to take direction, of all the DCIOs that do not own a record keeper, BlackRock has the best chance to drive

not only investment-related innovation but also industry innovation, bringing togeth-er active, passive and risk management capabilities.

In the future, according to BlackRock, advisors need to be focused less on picking and monitoring funds and more on man-aging risk and putting participants on a path to achieve their goals. Though DCIOs have little input on plan design, the asset allocation and risk management strategies will become more critical than picking the hottest manager or fund rotation.

BlackRock is skeptical about the movement toward customized TDFs since the economies of scale do not make sense for all but the largest plans. With their bet on advisors, BlackRock thinks that the DC business paradigm will shift power to advi-sors partnering with large asset allocators who are focused less on the ingredients and more on the process — unlike many other DCIOs whose investment strategies are limited by the products they have available.

keviN haNNey

PlaN sPoNsors

robiN DiamoNteuNiteD teChNologies


son’s age, which triggers which glide paths are used; assets move into variable annuity contracts as they get older, with all money moved when they are 60. The all-in cost is 119 BPs, which is less than market rates of 200-400 BPs. UTC defaults employees into the retirement income product who showed little or no proclivity to change investments. For their TDF option, UTC developed custom TDFs based on the demographics of their workforce.

More firms would be adopting retire-ment income products, and might even automatically default employees, if they had more guidance or even a safe harbor from the DOL, according to Diamonte. She predicts that more focus will be placed on lifetime income products, plan design and custom TDFs, as well as one-on-one edu-cation looking at a person’s total financial condition. Education should be delivered in multimedia formats, not with written mate-rial, she believes, and DC enrollment should be paired with health care enrollment and even annual performance reviews.

loVe him or hate him — and there are dC indUstry PeoPle lined UP on both sides — jerry sChliChter has foreVer Changed the qUalified Plan indUstry. he Promises to ContinUe doing so, fUeled by ProCeeds from reCent ViCto-ries in two Cases filed by emPloyees of major reCord keePers. thoUgh the Cases started oUt as exCessiVe fee Cases, they haVe really foCUsed on how PartiCiPants in dC Plans haVe been treated differently and more Unfairly than those in a ComPany’s db Plan, a sentiment shared by sChwab’s walt bettinger. Today courts seems to be more willing to accept ERISA cases and are better able to understand them. Schlichter appears to be learning not just how to

frame his cases to get class action status but also how to emerge victorious.

Schlichter estimates that his initiatives and their ripple effects have lowered fees in the $5.3 trillion DC market by 20 BPs, or a staggering $10.6 billion — annually. Acting as David against the Goliath record keepers and their insurance companies — and risking his own money pursuing ERISA fee cases — he found that in one instance the opposition spent $40 million that eventual-ly resulted in a $32 million judgment, not including pre-trial expenses. As he looked at the situation, Schlichter was struck not just by how unfairly DC participants were being treated but also why the DOL had not taken action.

Advisors have also benefited because there’s heightened awareness by plan spon-sors about their duties to act as a prudent expert — a responsibility that, for the vast

jerome sChliChter

attorNeys

schlichter can envision a spillover into ira class action suits, a $5.7 trillion market where fees are higher and there is even less regulatory oversight.

sChliChter bogarD & DeNtoN, llP


majority, requires hiring a third party. Schlichter can envision a spillover

into IRA class action suits, a $5.7 trillion market where fees are higher and there is even less regulatory oversight. Other po-tential battlefields include TDFs, especially proprietary ones that charge fees to pick their own funds and ones that don’t use index funds — especially in asset classes like large cap value where they make more sense. He also questions TDFs that have so many funds in one asset class that they are really buying the market if you look at their underlying holdings — leading, once again, to the question of why lower-cost index funds are not used.

Lawsuits in the retirement arena are not going away any time soon, as the fed-eral government, the media and individuals become more focused on retirement in gen-eral and DC plans and IRAs specifically. Neither is Schlichter.

Chetney heralded the emergenCe of retirement Plan adVisor sPeCialists with the Creation of national retire-ment Plan adVisors (nrP). started in the early 2000s as the Profession of being a Plan adVisor was starting to gain momentUm, his band of elite, in-dePendent Plan adVisors was sUPer-Charged when lPl PUrChased them in late 2010. Today, LPL Retirement Partners Group stands as one of the leading indepen-dent distributors — and a top destination for plan advisors looking for a broker deal-er that not only understands their business but actually supports it.

Chetney started his career in retirement as head of sales for Reliastar, a provider that was eventually sold to ING. When he started, Chetney says, the industry was brand new, especially for small and mid-size companies, with insurance companies entrenched. Mutual fund companies like Fidelity heralded a major change not be-cause of daily trading and cost shifting, but because they were a trusted brand repre-senting the future. Though mutual funds now dominate the advisor sold DC market, Chetney thinks that their brand recognition,

and the costs associated with it, are no lon-ger required. The new frontier is getting to the participants and helping them create a holistic financial plan that includes their DC plan. The winners, he believes, will increase income replacement ratios or DC alpha.

Understanding how the market works by using common sense gathered from working in the trenches with thousands of advisors, Chetney realizes that to affect tens of millions of participants, the industry must leverage the army of retail advisors in concert with plan advisors. LPL Worksite Financial is an attempt to marry plan and retail advisors with technology and call centers to provide cradle-to-grave financial planning using the DC plan relationship as the entry point. Like Bettinger at Schwab, Chetney wants to shift costs from active mutual funds to advice, though with a focus on live advisors to create DC alpha. He also wants to leverage retail advisors’ relationships with decision makers at plan sponsors to give plan advisors an opportu-nity to close more business. Chetney’s goals are ambitious and perhaps a little unrealis-tic, but that’s what they said when he was launching NRP.

bill ChetNey

lPl fiNaNCialDistributors

like Bettinger at schwab, Chetney wants to shift costs from active mutual funds to advice, though with a focus on live advisors to create dC alpha.


adVisors are the key to imPlementing the next breakthroUgh innoVations, bUt most haVe to dePend on broker dealers or rias that don’t Under-stand their bUsinesses or are not working in ComPlete ConCert with them. thoUgh there are many reCord keePers, dCios and tPas that sUPPort Plan adVisors, they are not Part of an integrated team Controlling all asPeCts of sales and serViCe — like when fidelity ComPletely Changed the dC indUstry. That’s why the emergence of teams is so interesting. Captrust is the largest and perhaps most important DC advisory team of all, and has the greatest chance to not only innovate but also leverage innova-tion from other people and sectors.

Captrust is hovering around $100 billion retirement AUM, and is focused on all types of retirement plans as well as wealth man-agement. The firm encompasses 100 advisors delivering a similar service model who are supported by a substantial back office in Ra-leigh, NC boasting 16 separate and distinct departments.

Founder and CEO Fielding Miller start-ed Captrust in 1987 as a broker. But his focus on objectivity, fee transparency and fiduciary practices resonated more with plan sponsors than with individual wealth clients. That approach took off after corporate scandals like Enron and WorldCom were followed by Sarbanes-Oxley. Plan sponsors realized that they needed an arm’s length relationship with their plan advisor, which should not be a consulting or accounting firm doing other business with the company. Providers selling direct also backed off instead embracing third-party, independent fiduciary advisors.

Operating in the large and mid-market ($20-$500 million), Captrust is ready to bring their service model down market with their acquisition of a small market firm in the Midwest. Larger plans focus more on capabilities and less on relationships when se-lecting their plan advisor, which Miller thinks will eventually trickle down market.

Captrust’s model promises to improve outcomes by emphasizing participant advice and education. But it also disrupts the current business model of many providers. Overall, power is clearly shifting to plan advisors from record keepers. Captrust controls the distribution as well as service models with their own relationship managers and partici-pant call center. Rather than wholesale direct to Captrust’s 100 advisors, providers must meet strict due diligence reviews at the home office. This heralds a “ton or none” business model for their partners that is similar in some ways to wire houses. But unlike almost any other distributor or even advisor, Cap-Trust has a “no golf” rule — refusing to take any subsidies from providers or allow their advisors to accept even a free dinner.

Captrust epitomizes what others on NAPA’s Top 10 Innovators list have echoed — the move toward more specialization, shifting costs from providers to advisors, more customization and advice, as well as working closely with participants one on

one. Though wholesalers serve an essential function, their value increases as the expe-rience level of an advisor decreases. Elite plan advisors, especially those in specialty groups like Captrust, would prefer that their provider partners spend money on delivering great service at lower costs while integrating their people and technology to help advisors increase alpha.

What a concept — take the money we spend on due diligence meetings at the Four Seasons and armies of wholesalers, some of which focus primarily on enter-taining advisors, and spend it instead on delivering great service through advisors to improve outcomes or DC Alpha. N

fielDiNg miller

CaPtrust

Captrust’s model promises to improve outcomes by emphasizing participant advice and education. But it also disrupts the current business model of many providers.

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PARTNER CORNER

The Partner Corner connects plan advisors withleading record keepers and DC Investment Only(DCIO) �rms — highlighting DCIOs’ services,resources and positioning in the market, as well as territory maps for their sales and support people. Value added services and white papers also may be accessed by topic. Currently, only NAPA Firm Partners at a certain membership level have the opportunity to publish a basic or enhanced listing in the Partner Corner.

NAPAPARTNERCORNER


Firm Profile American Century Investments® is rooted in building relationships — the kind of long-term relationships that can only happen when there’s trust … when there’s a consistent track record of delivering results … and when the ultimate measure of our perfor-mance is our clients’ success.

At American Century Investments, our com-mitment is rooted in focusing on delivering superior investment performance and developing long-term relationships with our clients. Our track record of performance, our business model and the legacy of our founder set us apart in the industry.

Performance Focus for More than 50 Years• Founded in 1958 by Jim Stowers, Jr., we relent-

lessly focus on delivering superior investment performance and building long-term relation-ships with our clients.

• Our headquarters is in Kansas City, MO, with offices in New York City; Mountain View, CA; and London, England.

• We take an active team-based approach to man-aging equity and fixed income investments.

Pure Play Business Model• Money management is all we do. • No ancillary businesses distract our focus,

stretch our resources or compete with our clients.

Privately Controlled and Independent• Our owners maintain a long-term view when it

comes to investing and our company. We are not beholden to quarterly earnings pressures. This enables us to stay true to the long-term objec-tives of our investment strategies, offer reliable diversification and align with the best interests of our clients.

• We’re from Main Street, not Wall Street. We take an independent view, guided by our commit-ment to do the right thing for our clients. We’re one of the few major asset managers untainted by ethical lapses.

Profits With a Purpose• Through our ownership structure, more than

40% of American Century Investments’ profits support research to help cure genetically-based diseases including cancer, diabetes and dementia.

• With their personal fortune, American Century Investments founder Jim Stowers Jr., and his wife, Virginia, founded and endowed the Stowers Institute for Medical Research, a world class biomedical research organization dedicated to improving quality of life by researching and uncovering the causes, treatment, prevention and cure of genetically-based diseases. Both Jim and Virginia are cancer survivors.

Investment Strategies for Retirement PlansOur management teams are guided by

well-defined, repeatable investment processes and are dedicated to fully invested, active management approaches. American Century Investments offers a full menu of investment options ideal for a variety of retirement plans.• Team-based investment management approach • Proven long-term risk-adjusted performance in

all asset categories• A variety of pricing options and flexibility to

meet your needs• Availability through most major record keeping

platforms

QDIA OptionsProviding broad diversification through asset

allocation options that qualify as QDIAs, American Century Investments has investment options to meet your retirement plan needs:

One ChoiceSM Target Date PortfoliosThe One Choice Target Date Portfolios from

American Century Investments are a series of nine target date funds and one objective-based fund that offer evolving strategic allocations that are optimized for the changing risk profile as an investor nears retirement.

A One ChoiceSM Target Date Portfolio’s target date is the approximate year when investors plan to retire or start withdrawing their money. The principal value of the investment is not guaranteed at any time, including at the target date. Each target-date One ChoiceSM Target Date Portfolio seeks the highest total return consistent with its asset mix. Over time, the asset mix and weightings are adjusted to be more conservative. In general, as the target year approaches, the portfolio’s alloca-tion becomes more conservative by decreasing the allocation to stocks and increasing the allocation to bonds and money market instruments. By the time each fund reaches its target year, its target asset mix will become fixed and will match that of One ChoiceSM In Retirement Portfolio.

One ChoiceSM Target Risk PortfoliosFive static target-risk funds offer instant

diversification. These portfolios are built using up to 15 underlying mutual funds to help balance risk and return. Each target-risk One Choice Portfolio seeks the highest total return consistent with its asset mix.

Balanced FundAmerican Century Balanced offers a consis-

tent, risk-managed approach through a classic 60/40 mix of stocks and bonds.

Strategic Allocation FundsThe Strategic Allocation Funds are designated

Conservative, Moderate and Aggressive so investors can choose a portfolio that is aligned with their risk tolerance.

American Century Global AllocationAmerican Century Global Allocation fund casts

a wide net across regions, countries, currencies and asset classes in search of opportunities to expand return potential while managing volatility. Tactical adjustments take advantage of opportunities and adjust to changing market conditions.

You should consider the fund’s investment objectives, risks, charges and expenses carefully before you invest. The fund’s prospectus or summary prospectus, which can be obtained by visiting americancentury.com, contains this and other informa-tion about the fund, and should be read carefully before investing.

business metricswww.americancentury.com

number of external wholesalers

DC: 13

retail: 45

dC aUm:

total: $31.5 billion (as of 6/30/2013)

total aUm:

$127 billion (6/30/2013)

investments:

mutual fund

group annuity: variable portfolios for annuity products

Collective trusts

smas

asset allocation funds:

tDf: “to” – one Choicesm target Date Portfolios

target risk: one Choice target risk Portfolios

Passive/active/Both

active

Capital Preservation funds:

money market

fixed income

fixed income mutual funds

Bonds

bond mutual funds

top 5 funds within american Century investments by dC assets (as of 6/30/2013)

american Century one Choicesm target Date Portfolios

american Century strategic allocation

american Century growth american Century heritage

american Century equity income

NAPAPARTNERCORNER NAPAPARTNERCORNER


Firm Profile Though many small market record keepers are moving towards a more open architecture platform, there are only a few national firms like CPI who started that way and have remained true to that model. Many record keepers are either insurance companies offering funds using their own group annuity or collective trust wrapper or they manage proprietary mutual funds — sometimes both — which may not be appealing to advisors who want to have access to a greater variety of investments without any pricing bias. With more focus on fees and transparency, open architecture, reason-ably priced firms like CPI are becoming more attractive to advisors, but CPI is different than their competitors because of their ownership structure. Their natural competitors, which include Ascensus, Verisight, Daily Access, Newport Group and Verisight, are either backed or owned by investors or private equity firms, not a large financial institution with deep pockets that can afford to be patient. CPI is owned by CUNA Mutu-al Group, a large financial service firm owned by and servicing credit unions, can afford to invest more in technology, people and distribution than a typical, low cost, open architecture firm might be expected giving them a unique advantage over almost any competitor.

CPI was founded in the early 1970’s in Great Bend, KS where most of their 500+ people still work giving them a real cost advantage over almost all their competitors, especially in the Northeast. Their staff includes 140 ASPPA designated professionals and, combined with CUNA Mutual, they manage more than $16 billion and 7,300 plans which cover 350,000 participants. Their target market is DC plans with $500,000-$7 million in assets focusing more on specialist DC advisors as evidenced by their 2013 3rd Annual Retirement Academy which attracted 200+ plan advisors with almost $100 billion AUM, 5,400 plans and 2 million participants. Along with their open architecture platform where advisors can act as a 3(21) or 3(38) fiduciary picking from more than 15,000 funds traded through the NSCC, CPI offers outsourced fiduciary services through Mesirow.

Acquired in 2009 by CUNA Mutual, CPI has almost doubled their sales territories since the sale to include 21 wholesalers supported by an internal team in Great Bend, which is almost twice the size of any of their open architecture competitors. Though their sales forces and target markets are vastly different with CUNA selling direct to credit unions, their back office service and technology are beginning to come together. Leveraging CUNA Mutual’s technology group which includes more than 500 people, CPI shares CUNA’s proprietary record keeping system which affords them significant flexibility. Both CPI and CUNA regularly receive top ratings in the DCP plan sponsor surveys conducted by the Boston Research Group. Advisors

will also see CUNA’s name (which stands for Credit Unions of North America) more often in an attempt to not only bolster the financial backing of a Fortune 1000 company but also to focus CUNA’s expertise in serving the common investor which is the hallmark of credit unions. CPI’s history and understanding of the advisor sold, small DC market is what attracted CUNA which is highlighted by service nuances that perhaps only an open architecture firm could and would pro-vide including:• Form 5500 filings where CPI is listed as admin-

istrator protecting advisor clients from bother-some cold callers and competitors

• Annual reports of participants turning 59• A list of all eligible employees, not just partici-

pants• Timely notification of terminations with names

and account balancesMore and more advisors are looking for fee

transparent, open architecture providers that offer good service at a reasonable price driven by concerns by clients about conflicts and high costs. But few open architecture firms can support advisors in the field while providing good service to plan sponsors and participants in an industry that demands constant investment and improvement while still remaining competitively priced. CPI’s history, business model and ownership structure under CUNA Mutual Group provides them with a unique offering to advisors that sell plans in the small market who may be concerned about the viability of smaller providers and long term independence of those owned by private equity firms.

Content created by NAPA Net and is the sole property and opinion of the author. CUNA Mutual Group and its subsidiaries are not responsible for the content of this webpage. While the content is derived from sources believed accurate, no guarantees are made regarding the accuracy of information provided.

business metricswww.cpiqpc.com

number of external wholesalers:

22

dC aUm:

total: $11.3 billion

retirement aUm:

$2.2 billion — Db only

total aUm:

$13.45 billion

dC Plan Um:

6,211

retirement Plans Um:

769 — Db only

dC Participants Um:

297,698

retirement Participants Um:

36,320 — Db only


tDf Proprietary/outside: yes — outside

tDrisk Proprietary/outside: yes — outside

Custom glide Path: yes — unlimited broker customization

service model(s): (bundled/unbundled/both):

both

distribution model(s): (advisor/direct/both):

advisor

Primary market(s) served:

micro (<$1 million): yes — sub-market

small ($1-$10 million): yes — target market

mid ($10-$100 million): yes — sub-market

Plan type(s):

DC: 401(k), Profit sharing, money purchase, erisa 403(b)

Db

Non-erisa 403(b)

457

taft hartley

Non Qualified

fiduciary services offered:

3(21)

3(38)

Key Contacts:sales & service: https://www.cpiqpc.com/contact-cpi.asp

NAPAPARTNERCORNER


Firm Profile It’s hard to think about the retirement industry without thinking about Fidelity, which has 60% of its $1.7 trillion of assets under management in retirement-related accounts. But it’s not as easy to associate Fidelity with the investment-only business — since their 20,000-plus qualified plans (with 12 million participants) are on their fully integrated, bundled platform — until recently, that is. With 75% of the marketplace record kept on non-Fidelity platforms, along with the movement toward open ar-chitecture and the increasing reliance on consultants and advisors, Fidelity changed its model to reenergize their DCIO business.

Fidelity Financial Advisor Services (FFAS), as its name implies, concentrates on selling and servicing advisors. In addition to making their funds available, they had been selling their DC record keeping and ad-ministrative services to advisors. In 2011, when sales of record keeping services were moved under WI, FFAS shifted their attention to building an integrated DCIO group — expanding resources, creating spe-cialized thought leadership and developing a focused product and pricing approach.

That division, under the leadership of Jordan Burgess, a long-time FFAS veteran, employs 10 field wholesalers selling to advisors (under Derek Wallen) and five institutional reps selling to consultants (un-der Matt Gannon, a long-time MFS executive who was instrumental in building their retirement business). The group oversees nearly $70 billion DC AUM — making FFAS a top-tier DCIO provider.

Fidelity enjoys a number of important and unique advantages as a DCIO provider, including:• Industry Leadership — They combine retirement

expertise and knowledge with investment and technical wisdom.

• Comprehensive Investment Menu — With more than 140 advisor funds, multiple share classes including many Z shares (like R6) and institutional CITs and SMA managed by Pyramis, Fidelity understands the types of investments that appeal to retirement plans and participants.

• Unparalleled Resources and Brand — With 800 investment professionals and many more techni-cal experts, Fidelity has money to keep investing in the business as well as a strong retail and institutional brand.

FFAS has always worked with and understood the needs of advisors. The DCIO group is leveraging their expertise and Fidelity’s resources, including their rich database of plans and participants, to help advisors, record keepers and plan sponsors with their goal of ensuring participants achieve better retire-ment outcomes. They focus a number of resources and research on:• What plan sponsors want from their advisors and

what their major concerns and issues are• Participant behavior patterns when making

investment decisions and attitudes about retire-ment readiness

• Investment trends, especially those affecting retirement plansWhite papers following up on their research cov-

er important topics like how to restore confidence in investors, whose allocations are becoming too conser-vative just as they are increasingly concerned about their ability to retire. FFAS also makes available to advisors a dedicated team of investment professionals to help construct optimal investment fund lineups and perform customized mapping with supporting investment analytics.

Fidelity funds, which have some of the greatest depth as well as sensitivity to the retirement market, include:• Fidelity Advisor New Insights, covering large cap

growth• Fidelity Advisor Growth Opportunity Fund• Bond funds such as Fidelity Advisor Strategic

Income and Fidelity Advisor Total Bond • Large value with their Fidelity Advisor Equity

Income fund• Fidelity Diversified Stock, a large cap blend fund• Fidelity’s popular Fidelity Advisor Freedom

Funds, which is the market leader in target date fundsFidelity’s DCIO group works with all major record

keepers, so advisors have access to their broad array of funds. Now, with the recently formed, dedicated DCIO team and resources, plan advisors using Fidelity funds will have access to their people, research and brand from the retirement industry’s clear leader.

business metricswww.advisor.fidelity.com/dcio


retail: 15

dC aUm:


total aUm:

$1.7 trillion

investments:

mutual fund

Collective trusts

smas


tDf (to/through/both): through

target risk

Passive/active/Both:

active


stable value

money market

giCs

fixed income

yes

top 5 funds by dC assets

fa freedom funds (12 target Date funds) fa small Cap

fa New insights fa balanced

fa leveraged Co stock

Key Contacts:sales: Derek Wallen, svP, Division manager, 401.292.5615, [email protected]

service: tom restivo, svP, operations and services group, 401.292.5596, [email protected]

(DCIO)



business metricswww.invesco.com/us


DC: 10

retail: 103

dC aUm:


total aUm:

$705.6 billion

investments:

mutual funds

Collective trusts

smas


tDf (to/through/both): both

target risk

managed accounts


stable value

money market

Bonds

yes

top 5 funds by dC assets (with asset total & last year new flow):

ivz growth and income: $3.5 billion

ivz Diversified Dividend: $1.8 billion

ivz Comstock: $2.8 billion

ivz international growth: $1.7 billion

ivz equity and income: $2.8 billion

Key Contacts:sales: jeffrey hemker, Cima® 630.258.6931, [email protected] accounts: matt foster 832.814.8775, [email protected]: invesco retirement Division sales Desk 800.370.1519

Firm Profile Invesco is and has been a leader in the DCIO

market with a long history in retail and institutional money management and an emphasis on working with DC plan advisors to help create value for their clients. Having exited the DC record keeping market in the mid-2000s, Invesco’s focus on investment manage-ment makes them a popular choice for plan advisors and leading broker dealers, with many of their funds available on all major platforms.

Led by industry veteran Terry Kelly, the DCIO group includes 10 external and 10 internal whole-salers as well as six senior account executives as of 10/31/2013. The group flowed more than $10 billion in 2010 from plan advisors. Once a prominent player in the DC record keeping market through outsourced solutions as well as a proprietary system, the company decided to exit that side of the business in 2003. In-vesco sold their proprietary platform to Merrill Lynch, which eventually flipped it to The Hartford. The expe-rience helped Invesco develop a good understanding of the market and the needs of plan advisors, making their transition seamless as more platforms were forced to offer outside investments. Their sales people who had sold record keeping services developed a solutions-based approach that attracted plan advisors.

Providing impactful and unique value-adds has become a real challenge for DCIOs. Many firms seem to make available off-the-shelf third-party tools that are also offered by various competitors. Invesco has always developed their own tools and services, howev-er. Those capabilities were augmented in 2010 when the company purchased the retail asset management business of Morgan Stanley, including Van Kampen Investments — a leader in value added materials for plan advisors.

Invesco employs a dedicated internal group of 12 practice management and marketing consultants that also serves retail advisors. This group has helped develop industry leading programs such as “The Final Word,” focused on using the right words to make effective finals presentations to boards, and “New Words for the New Economy” to help participants understand and maximize benefits. These programs were developed through extensive research with plan sponsors and participants. Their newest program draws from the lessons of Hollywood screenwriters. “Tell Me More” helps advisors create a “logline” that previews their benefits to clients in 15 words or less, and prompts prospects to say “tell me more.” For strategic relationships, Invesco will send in a team to review an advisor’s pitch book and materials.

Invesco is well known in the DC market for its large-cap value funds and mid-cap value strategies, including some that were part of the Van Kampen purchase. With competitive fees, Invesco’s value complex includes distinct strategies focused on deep value, relative value and companies that pay divi-dends. In their core strategies, Invesco will combine passive and active strategies to keep fees low. Though nascent, Invesco’s TDFs have been cited as one of the fastest growing in the DC market by Morningstar, and they also offer a risk parity strategy called Invesco Balanced-Risk Allocation Fund.

Invesco offers strong support for plan advisors with a robust and deep group of external wholesalers supported by internal professionals, industry leading value-added tools and a strong investment line-up, making them a valuable partner for the focused plan advisor.

NAPAPARTNERCORNER


Firm Profile John Hancock Investments provides asset

management services to individuals and institutions through a unique manager-of-managers approach. We operate as an independent and well-resourced investment advisor. This structure enables us to be highly responsive, develop funds based on investor need, and then search the industry to find the port-folio management teams with the best skill set, track record, and experience to manage those funds. Our funds provide access to specialized portfolio teams at some of the best managers in the world. Our indepen-dence and experience as one of the longest-tenured manager of managers enable us to achieve what we believe is an exceptional level of oversight. Our approach to investing has led to a diverse set of in-vestments deeply rooted in investor needs, along with strong risk-adjusted returns across asset classes.

business metricswww.jhinvestments.com


DC: 7retail: 70

dC aUm:

total: $5 billionNew 2012: $1.4 billion

total aUm:

$60 billion

investments:

mutual funds

group annuity - through john hancock retirement Plan services

smas



target risk


active


money market

fixed income

yes

Bonds

yes

top 5 funds by dC assets

john hancock Disciplined value fund

john hancock Classic value fund

john hancock Disciplined value mid Cap fund

john hancock rainier growth fund

john hancock lifestyle Portfolios (asset allocation strategies)

Key Contacts:sales: aaron esker, [email protected], 617.663.4281

service: aaron esker, [email protected], 617.663.4281



Firm Profile John Hancock has more than 150 years of

experience and is a member of the Manulife Financial Group of Companies.

John Hancock knows what goes into making a healthy, successful retirement plan. We are one of the nation’s largest providers, meeting the needs of partici-pants across a wide range of industries and plan sizes.

As your efficient provider, John Hancock gives you the innovative tools, resources and the people power to help you build and maintain a profitable retirement plan business and meet your clients’ needs.

The company has two offerings in the 401(k) marketplace: JH Signature™, our small market solution; and JH Enterprise®, our open architecture solution for the mid-market.

JH SignatureTM

JH Signature is a fully-packaged solution, offering a multi-class structure, local compliance and ERISA expertise, as well as a team of investment specialists who help research, select and monitor the asset managers on the platform.

JH Enterprise®

JH Enterprise is John Hancock’s open architec-ture retirement plan offering, providing plan sponsors with $10 million or more in assets with access to more than 18,000 investment options and a robust, real-time, proprietary record keeping system.

The company’s two commitments to their busi-ness partners and clients: We are easy to do business with, and we make plans work.

For more information, visit www.jhrps.com (For plans domiciled in New York, visit www.

jhrps.com/ny)

Key Contacts:sales: 1.877.346.8378

business metrics

Data as of June 30, 2013

www.jhrps.com, www.jhrps.com/ny


65

dC aUm:


total aUm:


dC Plan Um:

45,570

dC Participants Um:

1,690,000


tDf Proprietary/outside: Proprietary subadvised 1) to retirement 2) through retirement

tDrisk Proprietary/outside: Proprietary subadvised

Custom glide Path

service model(s): (bundled/unbundled/both):

bundled and unbundled

distribution model(s): (advisor/direct/both):

advisor


micro (<$1 million)

small ($1-$10 million)

mid ($10-$100 million)

Plan type(s):

DC

Db

457

taft hartley

ira


3(21)

NAPAPARTNERCORNER


Firm Profile Legg Mason has a rich history in the DC market and is making strong moves to become more prominent in the DCIO arena. Though Legg Mason has never owned a record keeper as other well-heeled DCIOs have, they did own a brokerage firm and created private-label services with other record keepers for their advisors looking to access their funds. In 2005, Legg “traded” their advisors for Smith Barney’s funds to focus on managing money. (Those advisors are now part of Morgan Stanley.)

While Bill Miller is Legg’s most renowned port-folio manager, the firm is comprised of eight different independent money managers which have access to shared services like the DCIO group headed by in-dustry veteran and thought leader Gary Kleinschmidt. The network of independent investment managers includes:

Batterymarch Financial ManagementAn equity specialist focused on bottom-up stock

selection, integrated risk control and cost-efficient trading. An early entrant into overseas investing, too.

Brandywine Global Investment ManagementPursuing value since 1986 across equity and

fixed income, globally and in the United States. Historically institutionally focused, the firm has both a boutique’s agility and a leader’s stability and resources.

ClearBridge InvestmentsEquity manager with more than 45 years of

experience and long-tenured portfolio managers who build income, high active share or managed volatility portfolios.

Legg Mason Global Asset AllocationOffers global expertise in strategic and tactical

asset allocation and custom risk management. Solu-tions-focused, the firm combines asset allocation with Legg Mason’s independent manager expertise.

Legg Mason Global Equities GroupA collection of specialty firms dedicated to

global equities. Each pursues its own strategy while benefiting from Legg Mason’s global scale. LMGEG includes: Esemplia Emerging Markets, Legg Mason Poland and Legg Mason Australian Equities.

The Permal GroupA global pioneer in multi-manager, multi-strate-

gy alternative investing. The firm has made invest-ments in new and established hedge fund managers across strategies, asset classes and regions since 1973.

Royce & AssociatesKnown for its disciplined, value-oriented

approach to managing small caps. An asset class pio-neer, the firm’s founder is one of the longest tenured active mutual fund managers.

Western Asset ManagementOne of the world’s leading global fixed-income

managers. Founded in 1971, the firm is known for team management, proprietary research and a long-term fundamental value approach.

The firm focuses on 1,200 plan advisors who specialize in the DC market, providing a con-cierge-like service which gives the advisors access to Legg’s fund managers, their ERISA help desk powered by Ascensus, white papers (many of which are by ERISA expert Marcia Wagner) and other val-ue-added services focused on the use of social media and building a pipeline of prospects.

While Legg Mason “checks all the boxes” need-ed to make it one of the 14 Tier 1 DCIO providers, what distinguishes Legg (and very few others) is their senior management and thought leadership. Gary Kleinschmidt started in the DC business in the 1980s, moving to Ascensus (then BISYS) in the 1990s and then to Van Kampen, which was a pioneer in the DCIO market, in the 2000s. He moved to Legg in 2007 to gain access to a firm that was comprised of eight different managers and because of their focus on DC plans after the 2005 advisor trade with Smith Barney. Gary serves on the NAPA Leadership Council, the group’s governing board.

Thought leadership is important for Legg Mason, which is why they created the Legg Mason Retirement Advisory Council comprised of leading professionals from various record keepers, advisory firms and broker dealers. Following a recent expansion, the Council now includes Brian Graff, Executive Director/CEO of ASPPA and NAPA. The Council supports research and thought leadership on a variety of topics, including auto-IRAs, creating undergraduate programs to attract more people into the retirement industry, and a First & 10 white paper encouraging Americans to first contribute to their retirement plan and then to contribute 10%.

The DCIO market is getting more competitive and the stakes will get much higher, with fewer than 50 providers focused on the advisor-sold market and fewer than 15 who are considered in the top tier based on sales, the number of wholesalers and value-added services, as well as the quality and depth of their investments. In the future, two factors will distinguish firms within the top tier: quality of senior management and thought leadership to help clients (advisors, record keepers and broker dealers) to distinguish themselves and improve participant outcomes. Legg Mason’s DCIO group enjoys great support from the firm and will continue to be a leader in this market.

This description was written by Fred Barstein on behalf of the National Association of Plan Advisors (NAPA). It was not written by Legg Mason.

NAPA is not associated with Legg Mason.

9/13 FN1312984

business metricswww.leggmason.com


DC: 8

retail: 60

dC aUm:

total: $20 billion

non-ira retirement aUm:

$92 billion

total aUm:

$654 billion as of may 31, 2013

investments:

mutual fund

group annuity

Collective trusts

smas




active


money market

fixed income:

yes

Bonds:

yes

top 5 funds by dC assets:

royce Pennsylvania mutual fund: $507 million gross sales, $2.3 billion aum

royce total return fund: $381 million gross sales, $1.5 billion aum

Western asset Core bond fund: $487 million gross sales, $1.2 billion aum

Clearbridge appreciation fund: $275 million gross sales, $484 million aum

Western asset Core Plus bond fund: $444 million gross sales, $1.9 billion aum

Key Contacts:sales: gary kleinschmidt, head of legg mason retirement 215.872.1317

service: ursula henry, vice President, account service manager



business metricswww.thornburg.com


DC: 5

retail: 14

dC aUm:

total: $9.4 billion

New 2012: $3.7 billion

total aUm:

$93.9 billion

investments:

mutual funds

group annuity

Collective trusts

smas


active

fixed income:

yes

Bonds

yes


international value: $8.5 billion assets2012 flow: $3,013 billion

international growth: $72.4 million assets 2012 flow: $48.9 million

value: $142 million assets2012 flow: $85.5 million

limited term income: $87 million assets 2012 flow: $49.4 million

Core growth: $171 million assets2012 flow: $49.6 million

Key Contacts:sales: rocco Dibruno, managing Director, thornburg retirement group, [email protected] office 877.215.1330 ext. 7150 Cell 609.405.4810

service: julie geraci, retirement Plan manager, [email protected], 505.467.7214

Firm Profile Thornburg Investment Management was

founded in 1982 and is headquartered in Santa Fe, New Mexico. Thornburg manages fixed income funds, equity funds, and separate accounts for high net worth and institutional investors. Assets under management are approximately $94 billion (as of 9/30/13). We focus on preserving and increasing the real wealth of shareholders after accounting for inflation, taxes, and investment expenses.

History of StewardshipThroughout Thornburg Investment

Management’s 30-year history, our focus on investors has been the cornerstone of our investment management business. Instead of directing attention towards marketing and gathering assets under management, our efforts have been focused on two things – generating strong investment returns and servicing our clients. We believe that if you do those things well, the rest will take care of itself. This commitment to investors has enabled Thornburg to earn an enviable reputation for strong historical performance and responsible stewardship.

Retirement GroupThe Thornburg retirement group provides a

series of share classes specifically designed for the retirement plan market; our mutual funds are available as an investment option on many leading open-architecture and bundled-service 401(k) platforms. Thornburg’s team of retirement plan professionals is dedicated to helping sponsors follow judicious decision-making processes based on industry best practices. Via educational seminars, books, and investment tools, Thornburg strives to be a leader in providing the resources for plan sponsors to identify and fulfill their fiduciary responsibilities.

Thornburg Equity FundsThornburg’s equity management approach

is bottom-up, focused on the fundamentals, and comprehensive. Each Thornburg equity portfolio is focused on a limited number of securities, so that a single holding can have a positive impact on performance. The management teams search for firms they believe will have a promising future, and seek to buy shares of those companies at a discount to their true, intrinsic values.

Thornburg Value FundShare Classes: R3 (TVRFX), R4 (TVIRX), and R5

(TVRRX)

Thornburg International Value FundShare Classes: R3 (TGVRX), R4 (THVRX), R5

(TIVRX), and R6 (TGIRX)

Thornburg Core Growth FundShare Classes: R3 (THCRX), R4 (TCGRX), and

R5 (THGRX)

Thornburg Investment Income Builder FundShare Classes: R3 (TIBRX), R4 (TIBGX), and R5

(TIBMX)

Thornburg Global Opportunities FundShare Classes: R3 (THORX), R4 (THOVX), and

R5 (THOFXx)

Thornburg International Growth FundShare Classes: R3 (TIGVX), R4 (TINVX), R5

(TINFX), and R6 (THGIX)

Thornburg Developing World FundShare Class: R5 (THDRX), and R6 (TDWRX)

Thornburg Bond FundsSince the launch of our first fund nearly 29 years

ago, Thornburg has applied a disciplined, bottom-up, credit-research-focused strategy to fixed-income management. We view ourselves as organic in our approach, avoiding leverage or complex strategies which could backfire in periods of market uncertainty.

Thornburg Limited Term U.S. Government FundShare Class: R3 (LTURX), and R5 (LTGRX)

Thornburg Limited Term Income FundShare Class: R3 (THIRX), and R5 (THRRX)

Thornburg Strategic Income FundShare Class: R3 (TSIRX), and R5 (TSRRX)

Vision, Mission & Values

Vision StatementOur vision is to be a trusted partner for our

clients and a respected leader in global asset management.

Mission StatementOur mission is to add value with active portfolio

management to help our clients reach their long-term financial goals. We achieve this through our investment strategies, adhering to our values and investment principles, and offering employees a challenging and rewarding place to build a career.

Thornburg Values• We do the right thing.

We act with integrity and put our clients first.• We think for the long term.

We engage in thoughtful decision making and believe that investment excellence should drive our decisions.

• We work together to achieve common goals. We show respect and humility towards each other and our clients. We believe in creating a supportive work environment that fosters teamwork, collegiality, and effective communication.

• We strive for excellence. We make the extra effort, practice continuous improvement, and stay flexible to adapt to changing circumstances.

• We are committed to employees.

We foster an environment that provides flexibility and opportunity for growth, while also requiring accountability.

• We are independent. We will remain a privately owned, independent firm to ensure that we act in the best interest of our clients and employees.

• We are community minded. We support philanthropic giving and encourage employee volunteerism.

NAPAPARTNERCORNER


business metrics

business metrics business metrics

www.allianzinvestors.com


DC: 5

retail: 21

dC aUm:


New funds: $2.8 billion


$12.7 billion

total aUm:

$43.8 billion

investments:

mutual fund

group annuity

Collective trusts

smas



target risk

managed accounts


active


money market

fixed income

yes: Part of a Portfolio

Bonds

yes

top 5 funds by dC assets : (with asset total & last year new flow)

allianzgi small-Cap value: $983 million, $2.3 billion aum

allianzgi retirement funds: $115 million, $200 million aum

allianzgi Dividend value: $678 million, $2.6 billion aum

rCm technology: $75 million, $100 million aum

Nfj international value : $463 million, $1.0 billion aum

www.americanfunds.com


DC: 22

retail: 74

dC aUm:


New: $47.8 billion


$242 billion

total aUm:

$1,019.9 billion

investments:

mutual fund

group annuity

Collective trusts

smas


tDf (to/through/both): through

target risk: yes

Passive/active/Both

active


stable value

money market

fixed income:

yes

Bonds:

yes

top 5 funds by dC assets(with asset total & last year new flow)

the growth fund of america: $122.1 billion, $11.7 billion

fundamental investors: $58.2 billion, $5.3 billion

euroPacific growth fund: $108.6 billion, $18.9 billion

New Perspective fund: $47.6 billion, $3.6 billion

american balanced fund: $61.7 billion, $7.3 billion

www.americanfunds.com


DC: 22

retail: 74

dC aUm:


retirement aUm:

$379.5 billion

total aUm:

$1,109.9 billion

dC Plans Um:

36,051


36,051

dC Participants Um:

900,000


900,000


tDf Proprietary/outside: yes, proprietary — american funds target retirement series

tDrisk Proprietary/outside: yes, proprietary — american funds Portfolio series

service model(s):


distribution model(s):

advisor


micro (<$1 million)


mid ($10-$100 million): DCio only

large ($100-$250 million): DCio only

mega (+$250 million): DCio only

Plan type(s):

DC

Db: DCio only

Non-erisa 403(b)

457: DCio only

taft hartley: DCio only

Non Qualified: DCio only

ira


3(21)

3(38)

Allianz Investors American Funds (DCIO) American Funds (Record Keeper)

Key Contacts:sales: brendan mahoney, retirement sales managerservice: Chris guarino, retirement Plan services operating Director, 1.800.421.9900

Key Contacts:sales/service: glenn Dial, managing Director, head of us retirement Distribution, [email protected], 212.739.4275kilie Donahue, vice President, manager, internal retirement Consulting team, [email protected], 212.739.4278

Key Contacts:sales: brendan mahoney, retirement sales managerservice: Chris guarino, retirement Plan services operating Director, 1.800.421.9900



business metrics

business metricswww.dailyaccess.com


DC: 8

dC aUm:

total: $8.5 billion

retirement aUm:

$8.5 billion

total aUm:

$8.05 billion

dC Plans Um:

1,595


1,595

dC Participants Um:

194,987


194,987


tDf Proprietary — Custom interserv model asset Portfoli-os/outside —1,325 tDfs

tDrisk Custom interserv model asset Portfolios/ unable to determine if any of the 1325 tDfs are risk adjusted

Custom glide Path: yes — Custom interserv model asset Portfolios/unable to determine if any of the 1325 tDfs incorporate custom glide paths

service model(s)

unbundled


advisor only


micro (<$1 million): exception



large ($100-$250 million)

Plan type(s):

DC

Db

457

taft hartley

Non Qualified


3(21): through wholly-owned subsidiary, interserv, llC

3(38): through wholly-owned subsidiary, interserv, llC

3(16): Not in-house; third party availability

www.federatedinvestors.com


DC: 6

retail: 52

dC aUm:



total aUm:

$375 billion as of 3/31/13

investments:

mutual fund

Collective trusts

smas

Passive/active/Both

both


stable value

money market

fixed income:

yes

Bonds:

yes


total return bond fund: $3,762 DC assets, $7,524 total assets

institutional high yield fund: $1,045 DC assets, $2,090 total assets

strategic value fund: $3,379 DC assets, $6,758 total assets

ultra-short bond fund: $958 DC assets, $1,916 total assets

kaufmann fund: $2,661 DC assets, $5,322 total assets

DailyAccess Corp. Federated Investors, Inc.Key Contacts:sales: [email protected]: [email protected]

Key Contacts:sales: bryan burke, svP, National sales manager-retirement/insurance, 412.491.1066service: Wally jones, Platform specialist, 412.720.8567jason kessler, Platform specialist, 724.720.8503

NAPAPARTNERCORNER


business metricswww.ingretirementplans.com


50

dC aUm:

$316 billion

retirement aUm:

$316 billion

total aUm:

$461 billion

dC Plans Um:

47,547

retirement Plans:

47,547

dC Participants Um

5.1 million

retirement Participants Um

5.1 million


tDf Proprietary & outside

tDrisk Proprietary & outside

service model(s): (bundled/unbundled/both)

bundled & unbundled

distribution model(s): (advisor/direct/both)

advisor


micro (<$1 million)




mega (+$250 million)

Plan type(s):

DC

Db

Non-erisa 403(b)

457


3(21)

3(28)

INGKey Contacts:sales: 1.866.481.3653, option 4service: 1.866.481.3653, option 3

business metrics

www.fidelity.com, www.advisor.fidelity.com


38

retirement aUm:

total: $1.2 billion

dC Plans aUm:

22,660

dC Partcipants Um:

16.3 million


20.7 million


tDf Proprietary/outside: fidelity freedom funds and several outside fund families

tDrisk Proprietary/outside: fidelity asset manager funds and several outside fund families

Custom glide Path

service model(s):

bundled


advisor & Direct


micro (<$1 million): exception




Plan type(s):

DC

Db

457

taft hartley

Non Qualified

Fidelity Investments (Record Keeper)Key Contacts:sales: 800.684.5254, option 1service: 866.444.4015



business metricswww.mfs.com


DC: 9

retail: 84

dC aUm:



total aUm:

$353.7 billion as of 6.30.13

investments:

mutual fund

group annuity

Collective trusts

smas


tDf (to/through/both): to

target risk

Passive/active/Both

active

fixed income

yes

Bonds:

yes


mfs value fund $7.9b, $6.5 billion

mfs international value fund $1.5 billion, $1.1 billion

mfs research international fund $1.7 billion, $1.6 billion

mfs growth fund $1.5 billion, $1.2 billion

massachusetts investors growth stock fd $1.6 billion, $1.3 billion

MFSKey Contacts:ryan mullen, senior managing Director, National sales, 617.954.6914mike schwanekamp, managing Director, 513.604.6421business metrics

wwwrs.massmutual.com


retail: 77

dC aUm:

total: $107 billion

retirement aUm:

total: $120 billion

total aUm:

$508 billion

dC Plans Um:

36,000+


40,000+

dC Participants Um:

2.5 million


3.1 million


tDf: retiresmart target Date series(Conservative, moderate, aggressive, and ultra aggressive)• T. Rowe Price’s Retirement Series (Income - 2050)• Russell Life Points Strategies (Retirement - 2050)• Wells Fargo Advanced Dow Jones Series (Target Today - 2050)• Manning & Napier Target Series (Income - 2050)• JP Morgan SmartRetirement (Income-2050)• American Century LiveStrong Portfolios (Income - 2050)• Stadion Target Series (Income - 2050)

tDrisk: retiresmart target Date series(Conservative, moderate, aggressive, and ultra aggressive)• see bulleted list above for TDF

Custom Glide Path

yes


both


advisor


• Micro (<$1 million)• Small ($1-$10 million)• Mid ($10-$100 million)• Large ($100-$250 million)• Mega (+$250 million)

Plan type(s):

DC, Db, Non-erisa 403(b), 457, taft hartley, Non Qualified, ira


3(21) yes- via mesirow financial



MassMutual Retirement ServicesKey Contacts:sales: Chuck lacascia, [email protected]

NAPAPARTNERCORNER


business metricswww.oneamerica.com


32

dC aUm:


retirement aUm:

$23.1 billion

total aUm:

$23 billion

dC Plans Um:

9,700


10,000

dC Participants Um:

514,000


620,000


tDf Proprietary/outside: outside (alliance bernstein, allianz global, american Century, fidelity, russell, t.rowe Price, and Wilmington trust)

tDrisk Proprietary/outside: outside (american Century, Dfa, manning & Napier, russell)

Custom glide Path: custom models and glide paths are financial advisor driven

service model(s):


distribution model(s): advisor/direct/both):

advisor


micro (<$1 million)



large ($100-$250 million): limited

mega (+$250 million): limited

Plan type(s):

DC

Db

Non-erisa 403(b)

457

taft hartley

Non Qualified

ira


3(21)

3(38)

OneAmericaKey Contacts:sales: National sales Desk: 1.866.313.7355service: National sales Desk: 1.866.313.7355

business metricswww.oppenheimerfunds.com


DC: 12

retail: 89

dC aUm:



non-retirement aUm:

$50.5 billion

total aUm:

$215.3 billion

investments:

mutual fund

Collective trusts

smas


target risk


active


money market

fixed income:

yes

Bonds:

yes


Developing markets fund:$9.4 billion, $3.2 billion

international bond fund: $2.0 billion, $508.6 million

global fund: $4.5 billion, $774.8m

main street: $1.3 billion, $274.1 million

international growth fund: $2.9 billion, $915.8 million

OppenheimerFundsKey Contacts:sales: james howard, 212.323.5016 [email protected]



business metricswww.Putnam.com/advisor/full-service-401k/


9


tDf: open architecture platform Putnam retirementadvantage and retirementready series

tDrisk: open architecture platform Putnam Dynamic asset allocation funds

Custom glide Path:

Putnam model portfolios


bundled; can also support unbundled with tPa


advisor/Consultant





mega (+$250 million)

Plan type(s):

DC

Non-erisa 403(b)

Non Qualified

ira


3(21)

3(38)

Putnam (Record Keeper)Key Contacts:sales: 800.719.9914service: 888.411.4015

business metrics

www.Putnam.com/DCio


DC: 13

retail: 50+

dC aUm:

total: $14 billion


$17.1 billion

total aUm:

$140 billion

investments:

mutual funds

Collective trusts

smas


tDf (to/through/both): to (retirementadvantage and retirement ready)

target risk: Putnam Dynamic asset allocation Portfolios

managed accounts : full-service plans only

Passive/active/Both

active


stable value

money market


Putnam equity income –$4.7 billion

Dynamic asset allocation Portfolios –$3.7 billion

Putnam income fund – $1.2 billion

Putnam international equity – $1 billion

Putnam retirement advantage (Cit)- $610 million

Putnam (DCIO)Key Contacts:sales: Putnam retirement sales, 1.800.719.9914service: DCio operations, 1.800.648.7410

NAPAPARTNERCORNER


business metricswww.ridgeworth.com, www.planadvisortools.com


DC: 6

retail: 9

dC aUm:

total: $2.6 billion



$2.6 billion

total aUm:

$48.1 billion

investments:

mutual fund

Collective trusts

smas


target risk

Passive/active/Both

active

fixed income funds available

yes

Bonds

yes


mid-Cap value: $655 million aum, $221 million 2012

total return bond: $152 million aum, $68 million 2012

large Cap value: $504 million aum, $169 million 2012

moderate allocation: $149 million aum, $38 million 2012

small Cap value: $294 million aum, $98 million 2012

RidgeWorth InvestmentsKey Contacts:sales: brandon shea, DCio National sales manager 615.364.1603, [email protected]: james kish, internal Desk manager for the retirement & investment specialists 404.845.7625, [email protected]

business metrics

www.troweprice.com/fi


DCio: 9

dCio aUm:


total firm aUm:

$614 billion

investments:

mutual funds

Collective trusts

smas


tDf: “through” glide path: 1) retirement funds 2) target retirement funds

target risk: Personal strategy funds

Passive/active/Both

active


stable value

money market

fixed income:

fixed income mutual funds


t. rowe Price retirement funds

t. rowe Price growth stock fund

t. rowe Price equity income fund

t. rowe Price mid-Cap growth fund

t. rowe Price blue Chip growth fund

T. Rowe PriceKey Contacts:sales: mark Cover, Director, Distribution services 410.345.4956 800.371.4613 [email protected]

NAPAPARTNERCORNER

DATApsychology


earch

SCIENCE

know ledge

fE

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By roBert l. friCK and Cathy smith

if at first you don’t succeed,

Try science


DATApsychology


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SCIENCE

know ledge

mere observation of human behavior, and turning behavioral challenges into behav-ioral solutions. So rather than just mim-icking another company’s match plan, as Excelsior did, advisors and plan sponsors can improve their plan by taking a scien-tific, measurable approach to improving plans.

When scientific methods aren’t used, knowing what really lies behind improve-ments or changes is hard. Consider a study outside the realm of finance that seemed to show that children who slept with the lights on were more likely to develop myo-pia. Further research showed that myopic parents tended to leave the lights on in their kids’ rooms. Since children inherit myopia from their parents, it turned out that it was genetics, not the lights, that made the kids nearsighted. This is a classic example of how correlation can be mistak-en for causation. And this problem is at the root of many misguided prescriptions to improve retirement plans.

Now consider the examples in our Excelsior parable. Is it the calculator that makes the difference, or is it that those who use it are already motivated, and so are likely to increase savings anyway? And is a high match responsible for higher participation, or are other factors at play, such as the high-match company has a highly educated, well-paid workforce?

Leaving Guesswork BehindWhen behavioral finance is applied

to improve defined contribution plans, it’s not just plan sponsors and participants who benefit. Plan advisors and record keepers who understand behavioral finance benefit too, because they go from guesswork to predictable outcomes and measurable improvements, which is good

ith the best of intentions, exCelsior amalgamated CorP. set oUt to imProVe its laCklUster retirement saVings Plan. The head of HR did a little research and discovered some interesting strategies. One big company with a high match rate had high participation, for example. And some industry studies showed that shower-ing employees with investment advice and adding a fancy retirement calculator to the company intranet also paid off. Plus, those who used the calculator actually cost the company less in health care costs.

So the company cafeteria was booked for the “Excelsior 401(k)!” rally. T-shirts were printed. Cake was ordered. In ink and icing, the Excelsior 401(k)! goals were tout-ed: 6% average annual savings, and 70% enrollment.

A year later, the CEO of our fictional company found his T-shirt at the bottom of a drawer, and called the HR chief for an update on the Excelsior 401(k)! program. “Well, boss,” he was told, “the plan is about where it was a year ago, but we’ve discov-ered some new ideas. Shall I book the cafete-ria and order T-shirts and cake?”

We think that this time around the T-shirts should say, “If at first you don’t suc-ceed, try science,” and any new ideas should be grounded in psychology and behavioral science, not gut feelings and gimmicks.

That’s the approach found to be most effective by the Allianz Global Investors Center for Behavioral Finance: Identify the best academic research and transform it into practical tools for advisors and plan spon-sors to use to improve outcomes for their clients and employees. Call it “Behavioral Finance 2.0,” the term used by the Center’s chief behavioral economist, Prof. Shlomo Benartzi of UCLA. Behavioral Finance 2.0 is about taking behavioral finance beyond the

Wa big impetus for founding the Center for Behavioral finance was to help accelerate the transfer of academic knowledge to improve financial decision-making for individuals and their advisors. here’s a look inside the Center.


mist was to help accelerate the transfer of academic knowledge to improve financial decision-making for individuals and their advisors. We wanted to make the science accessible and easy to use.

This first major project the Center un-dertook was its system for bringing behav-ioral-science-based solutions to retirement plans. The centerpiece of that system is Save More Tomorrow: Practical Behavioral Solutions to Improve 401(k) Plans, written by Benartzi with Roger Lewin. The title was inspired by a highly successful savings escalation program, “Save More Tomor-row,” developed in the 1990s by Benartzi and his colleague, Richard Thaler of the University of Chicago. While the book stands on its own as a source of behavioral strategies to build better DC plans, it’s also the text book for the Center’s PlanSuccess System and accompanying Certified Be-havioral Finance Analyst (CBFA) training program. The Center has certified about 100 CBFAs to perform “behavioral audits” of their clients’ and prospects’ DC plans using its proprietary online audit tool.

Advisors use the audit tool to gauge plan participation, savings rates and investment menu health, and to make recommendations for improvements based in behavioral science. Advisors can also use the audit tool to measure the impact of these behavioral prescriptions over time. To complement this program, and to help address growing demand from advisors beyond CBFAs, the Center also developed a Save More Tomorrow seminar, which is currently being rolled out to a broader range of advisors and record keepers.

Training in the science behind behav-ioral finance is crucial for those interested in improving DC plans, says Benartzi. Advisors with a deep understanding of why these strategies work, as opposed to “hobbyists” who throw around behavioral finance phrases, can better influence plan sponsors to make needed plan improve-ments. And they can measure progress and confidently link that progress to science, he says. Such proven results are how record keepers and advisors should be evaluated in the long run. “We believe using behav-ioral economics is the right thing to do, but we also believe it’s the only sustainable business model that will work.”

for business too. “By using automatic plan design features which are grounded in behavioral finance, employees are put on track to retirement readiness,” says Daniel Haverkos of AFS 401(k) Retirement Services in Bethesda, MD, an advisor who has received training in behavioral finance from Allianz Global Investors. “That goal improves DC plans overall, and lets advisors like us, and the record keepers we work with, achieve predictable retirement plan success for our clients.”

Consider two research-based DC plan innovations: auto enrollment and higher initial default savings rates (6% vs. 3% of pay). Auto enrollment takes inertia, one of our biggest behavioral challenges, and turns it on its head to create a solution. Let’s look first at the power of inertia to save lives and then apply it to saving for retirement. In a 2003 study (“Do Defaults Save Lives?”, Science 302 (Nov. 21, 2003)), Eric Johnson and Dan Goldstein compared organ donation programs in 11 countries. Some of these countries required citizens to consent to donate, or opt in to the program, and others presumed consent, so everyone was placed in the program unless they opted out. Two of the countries, Germany and Austria, were particularly interesting. Although these countries have

similar cultures and a common border, they have slightly different organ donation programs that yield vastly different results. Austria’s opt-out system means 99% of people donate their organs, versus just 12% in Germany, which requires people to opt-in. In the realm of DC plans, when opting out is set as the default option using auto-enrollment, studies have shown that plan sponsors can expect participation rates to rise by 20 percentage points or more and 90% participation is standard.

Now consider the impact if Excelsior had auto-enrolled its employees at a 6% savings rate instead of the 3% rate that is commonly used. Many plan sponsors do not choose a higher initial default savings rate because they are concerned it will cause participants to opt out. That may seem to make sense on the face of it, but research by John Beshears, David Laibson and Brigitte Madrian at Harvard and James Choi at Yale proves otherwise. Employees, they find, are not deterred by a higher default rate. According to their study published in 2009 (John Beshears, James J. Choi, David Laibson, and Brigitte C. Madrian. 2009, “The Importance of De-fault Options for Retirement Savings Out-comes: Evidence from the United States,” in Jeffrey Brown et al., eds., Social Security Policy in a Changing Environment. Chica-go: University of Chicago Press), partici-pation rates and opt-out rates are virtually the same whether the initial default is set at 3% or 6% of pay. This effectively harness-es the power of inertia to double savings rates. On the other hand, setting the initial default too low can seriously undermine employees’ retirement readiness by discour-aging those who might have saved more from doing so. According to the Employee Benefit Research Institute, the most com-mon initial default savings rate is still 3% of pay, not 6%.

Making Behavioral Finance Easy to UseThe two science-based examples de-

scribed above have major implications for financial advisors, plans sponsors and par-ticipants. But research like this doesn’t al-ways make its way out of the ivory tower. A big impetus for founding the Center for Behavioral Finance in 2010 and for hiring Benartzi as the chief behavioral econo-

any new ideas should be grounded in psychology and behavioral science, not gut

feelings and gimmicks.”


rates, only 56% of the employees were in the plan, “which is kind of scary.” After Whit-mire, also a CBFA, explained that automat-ic enrollment would likely help the plan sponsor achieve 90% participation, the plan committee agreed to a plan overhaul based on strategies in “Save More Tomorrow.” And it did so over the objections of an ERISA attorney who cautioned the firm might be exposed to liability if even a couple people were accidentally omitted. “But those on the committee thought it was the right thing to do. They didn’t want to leave 44% of their employees without retirement security,” Whitmire says.

Once employees join a plan, increasing their savings rate is the next hurdle. Take the Haskell Company, an architecture, engineer-ing and construction firm based in Jackson-ville, FL. Haskell automatically enrolled its employees in its 401(k) plan, and typical of many firms, the initial default savings rate was just 2%. It already had an automat-ic-increase feature, but it was only 1% of pay, and capped out at 6%. David Thaeler, executive vice president for human resources at Haskell, said that after a review of the program, “there was a feeling we have to do more. We wanted our people to be ready for retirement.” Jamie Hayes of Fiduciary-First in Maitland, FL, Haskell’s plan advisor, explained to the firm that not only are plan participants comfortable with a 6% default savings rate versus lower rates, but they also accept higher automatic annual increases, say 2% versus 1%, as well.

So Haskell took the steps necessary to overhaul its plan, and followed Hayes’ rec-ommendations of a 6% initial default savings

Real World ResultsSo how much success are the concepts

from Save More Tomorrow having being adopted in the real world?

Let’s start with the original Save More Tomorrow program. That success was docu-mented in a recent Science magazine article. (Shlomo Bernartzi and Richard Thaler, “Behavioral Economics and the Retirement Savings Crisis,” Science 339 (March 2013).) The program and others like it have helped over 4 million Americans double their re-tirement savings to the tune of more than $7 billion a year. Save More Tomorrow was not only the first example of behavioral finance at work, but it continues to be one of the most powerful.

And what about the broader range of strategies presented in the book? First of all, advisors tell us that employers are becoming much more receptive, which is likely in part due to success stories like the one just men-tioned. “Five years ago behavioral finance was a much harder discussion,” says Paula Hendrickson, a CBFA and the director of re-tirement consulting services for First Western, based in Denver. But these days, many plan sponsors have at least a general understand-ing of behavioral finance and are eager to discuss ways to improve plans beyond “fees, fiduciaries and funds,” she says. Behavioral finance dovetails with the message she’s been preaching for years, which is first “you must get people in the plan and saving enough.”

Now consider the case of a major law firm in the Washington, DC area. Jerry Whitmire, an advisor with Morgan Stanley Wealth Management in Alexandria, VA, says that while those in the plan had high savings

rate and 2% automatic annual increases, maxing out at 10%. Thaeler said the changes were widely accepted by Haskell’s diverse and far-flung workforce, which in-cludes engineers, architects and craftsmen, covering a range of salaries and levels of education. “I think there was surprise, but we’re very pleased that it did happen.”

Hayes adds that one cause of resis-tance among some plan sponsors is rooted in the herd mentality, another behavioral concept. Plan sponsors tend to measure their success against how other companies are doing. “I hear arguments such as, ‘we’re at 75%, and our industry average is 70, so we’re happy with that.’ And I say, why? Who cares what your peers are doing when 25% of your employees aren’t saving?” says Hayes.

Not every discovery that comes out of behavioral finance research, however, will be applied successfully in the real world. “Part of my job working with the Center is helping to separate the wheat from the chaff for clients,” Benartzi says. The indus-try has to recognize the nature of research and science, and that we need to test ideas with some companies, see if they work, and if they work, then and only then offer them industry-wide. “We will fail sometimes. That’s the nature of research and science.” But success isn’t the main issue with behav-ioral finance, over-promising results is, says Benartzi. If expectations are set too high, and not met, resources will dry up. “Future improvements will take time and learning, but there’s tremendous upside potential.”

these days, many plan sponsors have at least a general understanding of behavioral finance and are eager to discuss ways to improve plans beyond ‘fees, fiduciaries and funds.’”

» Continued on page 57


The Participant Experience: A Different World

i N s i d E T h E P l A N P A R T i c i P A N T ’ s m i N d

to their record keeper in a group meeting or in a memo, enrollment kit or benefits handbook. The participant enters into an “arranged marriage” with little or no brand perception of the record keeper. Further-more, they are essentially told they have no choice of the company or people who will shepherd them along the journey to retire-ment readiness. It is fair to say that there are few other relationships on a subject as important as retirement readiness where the consumer (that is, the participant) has no choice in the matter of provider selection. Not surprisingly, the participant is not “en-gaged” with the record keeper at the brand, product or partnering levels.

To dramatize this point, I think back to the early years of the DCP Participant Sat-isfaction survey. Essentially, record keepers would provide Boston Research Group with random samples of their participant base. We would then call the participants and ask them to name the company that adminis-ters, services and keeps records for their retirement plan at work. Using this line of questioning, we often found that 70-90% of participants could not correctly identify their record keeper. We resolved this situation by simply asking the participant to tell us what company sends them their quarterly statement. In this case, more than 90% of participants could give us the correct answer. The point is that the participants’ engage-

vastly different from that of their employer. In 2013, 65-70% (depending on asset size) of plan sponsors said they were “very satis-fied” (measured on a five-point Likert scale) with their overall relationship with their record keepers. However, when participants are asked the same question, only 40% gave their record keeper a “very satisfied” rating. A key causal factor in creating this differ-ence is the process by which plan sponsors, compared with participants, formed their relationship with the record keeper. This process difference leads to differences in engagement.

As you know, the process of a plan sponsor’s forming a relationship with a record keeper begins with an arduous sales process, often with the assistance of an advisor or other consultant vetting the candidates and pointing out their strengths and weaknesses. In a very detailed pro-posal process and finals presentation, the plan sponsor has the opportunity to form interpersonal relationships and select the record keeper that is the best fit along the lines of brand image, product lineup and partnering intent/skills. To say the least, the plan sponsor is fully engaged with the new record keeper from the beginning of the relationship.

Contrast this with how a participant forms a relationship with a record keeper. Essentially, participants are introduced

aturally, we all want participants to have a positive experience on their journey to retirement readiness. We are all working hard to make it so. Unfortunately, very often that goal

isn’t achieved. Furthermore, evidence shows that the quality of the participant customer experience can be worlds apart from the plan sponsor’s. This is particularly import-ant when you consider that the people who are ultimately responsible for providing high-quality products and services to par-ticipants (that is, plan sponsors) often differ from participants, by wide margins, in their day-to-day experience with their plan.

When plan sponsors and advisors see service weaknesses, they act. But what if they don’t see the differences?

Over the past 13 years of DCP studies, I have been tracking participants’ satisfac-tion with the products and services they receive from their record keepers. I have also been tracking, in parallel, plan spon-sors’ satisfaction with the same participant products and services. When we compare the findings of plan sponsors and partici-pants, we find there are far more differences than similarities. Let’s look at some of the specifics.

Relationship is KeyFirst of all, the participants’ overall

experience with the same record keeper is

when it comes to how plan sponsors and participants view participants’ “customer experience,” there are far more differences than similarities.

warren Cormier

N


i N s i d E T h E P l A N P A R T i c i P A N T ’ s m i N d

although low in both cases, 50% of plan sponsors are “very satisfied” with the per-formance of the plan’s investment options, compared with only 31% of participants.

The point is that participants and plan sponsors live in different ser-vice-quality worlds. Plan sponsors obviously receive a far different level of handholding, explanation and customized treatment than do participants. And it is worth reiterating that if participants are unhappy with the service they receive from the record keeper, they have little choice about what they can do next, other than complain to HR or to their co-work-ers or leave the plan.

Advisors and record keepers should keep these different worlds in mind, and encourage (and possibly assist) plan spon-sors to keep their participant feedback loops open as wide as possible to detect the need for quality improvement. N

» warren Cormier is president and Ceo of Boston research Group and author of the dCP suite of sat-isfaction and loyalty studies. he also is cofounder of the rand Behavioral finance forum, along with dr. shlomo Benartzi, and director of the naPa research institute.

rising from 73.5% to 75%, it’s rising to more than 90% — and without an army of people working to enroll employees.” He sees that many industry leaders recently have become believers, too. “This is quickly catching fire.” N

» robert l. frick is a writer, researcher and speaker for the Center for Behavioral finance. Cathy smith is co-founder and director of the allianz Global investors Center for Behavioral finance.

ment with their record keeper was fairly weak and entirely different from the plan sponsor’s.

Another causal factor leading to the vast differences between plan sponsors’ and participants’ satisfaction with the relationship is the available response to poor services, products or pricing. That is, if the plan spon-sor receives poor services, etc., for a period of time, the company has the option to, and often does, change record keepers. In a sense, the system purges itself of bad relationships and new, more satisfying relationships are established. As a result, satisfaction scores remain high. However, if the participant receives poor service, doesn’t like the prod-ucts or finds the pricing too high, he or she has no option to switch to another record keeper. They could drop out of the plan, of course, but that would deny them access to a valuable employee benefit.

Over time, this toxicity of unhappy participants builds in the employee base as unhappy customers cannot seek out more sat-isfying providers. This results in a significant reduction of the overall satisfaction percent-age score. Essentially, the participant operates in a monopolistic market; the plan sponsor operates in a purely competitive market.

And what future innovations does the Center for Behavioral Finance have its eye on? We continue to build on the strategies presented in Save More Tomorrow, but we’re also taking on the challenge of financial decision-making for those who have already reached their spend-down years. This new program, the Retirement Trail, is a multi-step, multi-year program, in part because the chal-lenges facing retirees are much more complex than those facing people saving for retire-ment. In addition, there is comparatively less academic research directly addressing this phase of financial life. Our team, guided as always by Benartzi and our academic adviso-ry board, is hard at work plumbing the deep well of research on topics like decision-mak-ing under uncertainty, values and risk, and grappling with how to most effectively apply all of this knowledge to improve the welfare of retirees.

Since identifying a clear set of goals is the critical first step for advisors and their

» feature artiCle (continued from page 55)

Satisfaction: Sponsors vs. ParticipantsLet’s look at some supporting data

proving that with respect to specific partici-pant service channels satisfaction, sponsors are far more pleased than participants. Looking at the participant website, 70% of plan sponsors are “very satisfied” while only half (54%) of participants feel the same way. The same is true for satisfaction with the participant statement – 75% of sponsors are “very satisfied” while only 50% of partic-ipants agree with plan sponsors. The two groups also vary somewhat on education services: 41% “very satisfied” among partici-pants; 51% among plan sponsors. Lastly,

retired clients, that’s also the starting line for the Retirement Trail. Our goal setting system will encompass content, but will also include a user-friendly app for advisors to use with their clients. Future stages in the retirement trail may also include virtual reality games and other digital solutions. “The future of behavioral finance lies at the crossroads of science and digital technology,” says Benartzi. “And that’s where we’ll be focusing a lot of our attention.”

We believe effective, science-based tools like our behavioral audit tool for DC plans and the apps we’re now developing for the Retirement Trail can help transform the retirement industry. “It’s still early but we are seeing a growing impact,” says Glenn Dial, head of U.S. Retirement for Allianz Global Investors. “Early adopters in the DC world have seen how well applied behavioral finance works, and that they can spend fewer resources to affect major changes,” he says. “For example, we’re not seeing participation

in a sense, the system purges itself of bad relationships and new, more satisfying relationships are established.”

This material contains the current opinions of the

author, which are subject to change without notice. It is

not intended to provide tax, legal or investment advice and

should not be construed as an offer to sell, a solicitation

of an offer to buy, or a recommendation of any security.

Investing in the markets involves risk. The return and prin-

cipal value of an investment are not guaranteed.

Allianz Global Investors is the asset management

arm of Allianz SE. The Allianz Global Investors Center for

Behavioral Finance is sponsored by Allianz Global Investors

U.S. LLC, a registered investment adviser, and Allianz Glob-

al Investors Distributors LLC, a mutual fund distributor.

AGI- 2013-10-31-8160

For more information, visit befi.allianzgi.com


An Industry Just Waiting to Consolidate

i N s i d E T h E m A R k E T P l A c E

it’s the cost of distribution, especially in the advisor-sold market and especially to “blind squirrels” (who still make up more than 50% of plans sold). And once they pay the price of attaining the plans, record keepers hate to lose them — which is why Hancock, ADP, Principal, Transamerica, Hartford, Nationwide, ING, OneAmeri-ca, GreatWest and Ascensus must have a mid-market strategy. Any provider which is stuck in the small market and unable to move up is toast unless they outsource dis-tribution, like Pai, and learn to make mon-ey on services provided, not assets. Maybe that’s why they’re called service providers, not asset gatherers.

Then there are the 600 TPAs who clear through Schwab, Fidelity, TD Ameritrade or Matrix. That’s right, 600, only 50 of

he last time the DC industry experienced double-digit consolidation was 2006, with 13 transactions. The past few years have been light, especially for record keepers (which should be consolidating at a much faster pace given the high cost of maintain-ing a technology platform combined with deflationary pricing and increased regula-tion). So with about 40 DC players in each of the three major service sectors — record keeping, DCIO and distributors — the time has come for some major pruning, except for distributors. Here’s why.

Record KeepersIt’s not really the price of maintaining

and upgrading technology or providing customer service that makes the cost of doing business so high for record keepers;

some players will falter; others will thrive. here’s why.

By fred Barstein

Tthose stuck in a world based on relationships and golf balls will find themselves outside looking in.”


i N s i d E T h E m A R k E T P l A c E

take off, and not in the traditional way. Don’t expect many, if any, new broker dealers to invest in and create a viable DC strategy in a market that they don’t understand and where margins are lower and liability is higher than in wealth management. The growth will come from smaller, focused specialty groups like CapTrust, Sageview and 401(k) Advisors and newcomers like Sheridan Road, RBG and Pensionmark. National benefits and P&C firms like Lockton and Gallagher have had some initial success with regional firms, with broker dealers like NFP starting to get religion. Look for even smaller groups run by the rare breed of smart, entrepreneurial plan advisors to grow, attracting solo advisors. And watch the larger specialty groups get bigger — much bigger.

The growth of large and smaller specialty groups that are focused on either benefits or on retirement and wealth management will further hasten consolidation of record keepers and DCIOs. At Captrust, the poster child for this dynamic, wholesaling is conducted mostly at the home office rather than with their 100 advisors — which means that providers’ products, services and investments have to pass through a much tougher due diligence gauntlet. And those stuck in a world based on relationships and golf balls will find themselves outside looking in, chasing high-cost “blind squirrel” plans or being forced to pay the high price of admission to home offices. For DCIOs, the situation is worse — they have to pay home offices and record keepers.

In a world of increased transparency and heightened fee scrutiny, advisors that cannot make money just from client fees will have a harder time attracting good customers and making money as subsidies from providers continue to dry up. Those who can, like Captrust, will thrive. Not only will they demand great service and products at reasonable prices, but they will also force a new paradigm that will cause further attrition in the provider ranks. How many providers are prepared for this new world? Fewer than the cur-rent group of 44 record keepers and 44 DCIOs? N

which have close to $1 billion. Most owners are older, unwilling to invest in technology and unable to grow organically because they can’t afford the high cost of distribu-tion. And then there are the providers in the “red zone” with between $5 and $15 billion in AUM who are maintaining a national wholesale force but don’t have the partici-pants or assets to compete with deep-pocket providers who can easily outspend and outlast them.

So are you betting the over or the under at 30 for the 44 national record keepers in the next five years? What happens if states or the IRS create auto-IRAs or if courts and/or the DOL deem record keepers to be fiduciaries? Does the over/under drop to 25?

DCIOsDCIOs used to be immune to consol-

idation. In fact, their ranks have swelled over the past 10 years, with hundreds of mutual fund complexes and hedge funds still greedily eyeing the DC market as DB plans dry up. But not so fast. The DCIO market is only going to get tougher as more money moves into TDFs and low-cost index funds. The cost of entry is high, with more aggressive toll takers at record keeping platforms and broker dealers whose own margins are being squeezed. Add the cost of trying to create and maintain a unique value add program, as well as high-level wholesalers, and the economics get even tougher. Witness the recent pullback by Pioneer and Lord Abbett and you see the future for many.

But even though margins are getting thinner, DCIOs are living large compared with record keepers. And who is going to give them up when the cost of maintaining a program is relatively cheap compared with record keeping? The DCIOs who own a record keeper and/or have viable TDF or passive strategies will separate themselves from the pack. And well-heeled hedge funds that offer alternative strategies will see the DC market as easy pickings domi-nated by active equity funds struggling to produce good returns, especially in asset classes where passive makes more sense. These alternative managers will attract plan sponsors seeking alpha as well as advisors looking to distinguish themselves.

DistributorsAt a recent meeting with a large

(+7,000 reps) independent broker dealer, the person in charge of their retirement strategy questioned whether they should even be in the qualified plan market, citing efforts by the DOL and the SEC to make it harder for commissioned brokers to represent plan sponsors and participants. Except that he’s going to have to tell the hundreds of his reps who focus on DC plans and the thou-sands that have at least one plan that they are going to have to exit the market and get rid of their plans. Now that would make for a good reality show.

Wire houses, and to a lesser extent larger independents, are dealing with the higher compliance stakes of the DC market by creating specialty groups, forcing “blind squirrels” to partner. Insurance companies have struggled, with some just giving up and others refusing to allow their reps to be fiduciaries. RIAs abound and seem to be well positioned, but who’s providing them with back office support, and where’s their brand or deep pocket parent in case the “you-know-what” hits the fan? Mean-while, reps at the indies and wire houses are acting as fiduciaries, charging asset-based or hard-dollar fees and employing a hybrid model — making the pure fee less unique even if the CFP Board won’t let them be listed as “fee only.” Really?

But here’s one market that is poised to

look for even smaller groups run by the rare breed of smart, entrepreneurial plan advisors to grow, attracting solo advisors. and watch the larger specialty groups get bigger — much bigger. ”


i N s i d E T h E N u m b E R s

Unfortunately, only about one-fourth of the sample studied (25.6%) in the most recent analysis either used an online calculator or sought professional investment advice, while nearly half of the 2013 RCS respondents merely “guessed” at those retirement savings targets. This is not a recent trend; statistically, workers are no more likely to have done this calculation in 2013 than they were a decade ago, though the likelihood of trying to do a retirement savings needs calculation increases with age and income.

Why then do so many reject the advice, in whole or in part? As it turns out, the rea-sons most often offered for not following all of the advice include:• not trusting the advice (33% of workers

and 48% of retirees)• not being able to afford it (21% of work-

ers and 12% of retirees)• having their own ideas or other plans

or goals (18% of workers and 28% of retirees)

• circumstances changing so the advice was no longer applicable (13% of workers and 3% of retirees)

• getting better advice somewhere else (6% of workers and 5% of retirees)Clearly, then, trust is an issue — and

perhaps the most important one — when it comes to accepting and acting on an advisor’s recommendation. For advisors who hope to help participants make the best of their re-tirement savings preparations, this may mean that being positioned to offer advice through the plan may turn out to be less of a challenge than getting participants to take it. N

» nevin e. adams, Jd, is the employee Benefit research institute’s director of education and external relations, co-director of eBri’s Center for research on retirement income and director of the american savings education Council. he has more than 30 years of experience working with employee benefit plans.

er-sponsored retirement plans. But even then, two-thirds of those workers said they would probably implement only some of the recom-mendations they receive, and just over one in 10 thought, sight unseen, that they would implement none of them. The study also found that only two in 10 would implement all of the recommendations if they trusted the source, while two-thirds indicated they would implement only those recommendations that were in line with their own ideas.

The Impact of AdviceEarlier this year, an EBRI analysis

considered the potential impact of advice on retirement savings targets.

Using data from the 2013 RCS Survey along with a modified version of the EBRI Retirement Security Projection Model® (RSPM), an EBRI analysis found that the sav-ings targets set by those in the lowest income quartile who had sought the input of a fi-nancial advisor were associated with a lower risk of running short of money in retirement by anywhere from 9 to nearly 13 percent-age points (depending on family status and gender). Put another way, those who worked with an advisor set targets that were more likely to provide sufficient retirement income in retirement if they did, in fact, accumulate the amount they said would be required.

One might wonder about the reluctance to take advice, since the use of retirement planning “help,” either in the form of online calculators or plan advisors, has been linked not only to more accurate targets, but also to higher levels of retirement confidence. In fact, the 2013 RCS found that 31% of those who have done a calculation, compared with 14% of those who have not, say they are very con-fident that they will be able to accumulate the amount they need. Meanwhile, 12% of those who have not done a calculation, compared with 3% who have, report they are not at all confident in their ability to save the needed amount.

etirement plan advisors may well be the best source of retirement plan advice, but they’re certainly not the only one. Industry surveys routinely indicate that individuals are as likely — and sometimes more likely — to

seek the counsel of friends and family, than the counsel of the advisor associated with their workplace retirement plan.

While advice is increasingly available through a growing variety of media associat-ed with workplace retirement plans, the take-up rate can still be something of a disappoint-ment to advisors and plan sponsors alike. Just 23% of workers (and 28% of retirees) report they have obtained investment advice regard-ing their household financial situation from a professional financial advisor who was paid through fees or commissions, according to EBRI’s 2013 Retirement Confidence Survey.

What is even more striking is that among the workers who did pay for the advice, only a quarter (27%) followed all of it. In fact, more (41%) disregarded some but followed most such advice; the same percentage (27%) disregarded some and followed some of it. At 46%, retirees were more likely to report following all of the advice.

These disinclinations are not a recent phenomenon. Among the worker respondents to EBRI’s 2007 RCS who were offered pro-fessional investment advice through their em-ployer, just over half (53%) reported request-ing and receiving specific recommendations on how they should invest their money. Even then, only 13% subsequently implemented all of the recommendations. Thirty percent did not implement any of them, and 57% imple-mented some of them.

Similarly, well before the 2008 financial crisis that shattered the trust of many inves-tors, more than half of worker respondents to that same 2007 Retirement Confidence Sur-vey indicated that they would be likely to take advantage of professional investment advice offered by companies that manage employ-

R

Advice and ‘Consents’Being positioned to offer advice through the plan may turn out to be less of a challenge than getting participants to take it.

By nevin e. adams

i N s i d E T h E N u m b E R s

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Source: PLANADVISER Magazine (Sep/Oct 2012). 2012 PLANADVISER Retirement Plan Adviser Survey: 602 responses were received from retirement plan advisors. Questions included in the survey pertained to size and scope of the advisor’s qualifi ed plan business, practice management, compensation, client service, and assessments of investment managers, mutual funds, and defi ned contribution (DC) providers. Fielded in July 2012.

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